Pwogwessivity of the Tax Code Once Again

On May 8, 2006, Edward Lazear and Katherine Baicker of the Bush administration's Council of Economic Advisers wrote in an op-ed for the Wall Street Journal that: "The president's tax cuts have made the tax code more progressive, which also narrows the difference in take-home earnings." See http://online.wsj.com/article_print/SB114705083956846285.html.

This excited substantial curiosity in my circles. We knew that the Bush tax cuts had not narrowed differences between classes in take-home earnings--they had widened them. We were disturbed. We genuinely like Eddie Lazear and Katherine Baicker--very smart people working hard to make this a better country and a better world. Why were they saying something that is clearly false?

I have now heard, from sources believed but not guaranteed to be reliable that have talked to people who have talked to people who claim to know, a story about how it happened.

The document was bouncing around the CEA offices, being edited, and it hit the desk of somebody who was supposed to edit it who thought that the sentence "The president's tax cuts have made the tax code more progressive," was not accessible enough to those who were not professional economists and did not have the tax-finance definition of "progressive" in the front of their brains. So this editor added the clause "which also narrows the difference in take-home earnings," in order to explain what "made the tax code more progressive" meant. And the document then bounced its way to publication, with nobody else taking a close look at this passage relatively low down in the article. A bureaucratic SNAFU.

So this editor took a word--progressive, in the tax-finance sense--and added a clause giving its meaning. Why should this cause a problem? It causes a problem because the Bush administration has decided to use a non-standard definition of progressive. The Bush administration now defines a change in tax law as "progressive" if it increases the share of taxes paid by the rich whether or not it narrows cross-class income differentials. But nobody high up where the air is thin and where this decision to use a non-standard definition of "progressive" was made ever bothered to tell the poor schmuck who wound up editing the piece.

The moral? I guess one moral is that an individual with a good memory can be a good liar, but that a bureaucracy cannot, almost by definition. If you are going to use a non-standard definition of a word in an attempt to mislead your readers, you need to make sure that everybody on your side handling the document is in on the con. If not, embarrassing things will happen, like somebody on your side taking seriously your claim that the Bush tax cuts "have made the tax code more progressive."

Further evidence that the "which also narrows..." clause was added at the very end of the editing process comes from Greg Mankiw. Greg launched a defense of Lazear and Baicker. And he appears to have done so without reading the final version of the op-ed. Greg wrote:

Greg Mankiw's Blog: Framing and Progressivity: In today's CEA op-ed, the sentence... "The president's tax cuts have made the tax code more progressive."... [T]here is no single way to gauge changes in progressivity.... Consider a simple example.... You could say the... [change is not progressive]: ... After the tax cut, the difference in take-home pay between the two guys is larger.... You could say the... [change is progressive]: ... After the tax cut, the rich guy pays a larger share of the total tax burden.

It is impossible to say on purely economic grounds which of these perspectives is better. All of these statements are mathematically correct, even if they leave the reader with very different impressions.

Greg is all geared up to agree that the Bush tax cuts widened differences in take-home earnings, but to say that Lazear and Baicker could nevertheless truly claim that the Bush tax cuts were progressive. But that's not what the op-ed said, is it? The op-ed said that the tax cuts were progressive and that they narrowed income differentials.

So a second moral: if you're going to defend the writings of the Bush White House, to avoid embarrassment read the final version of what you're defending before you push the "submit" button.