WSJ Economic Revisionism

Whenever we see a Wall Street Journal op-ed piece from Arthur Laffer and WSJ editorial board member Stephen Moore on taxes and income, we know we're in store for some selected data distortion intended to "prove" that Bush's tax cuts were a terrific thing.

So we really shouldn't have been too surprised by today's column, "New Evidence on Taxes and Income," which asserts that the lowest fifth of U.S. income earners have somehow benefitted from Republican tax cuts.

The irony is that today's column is juxtaposed with the WSJ front page, which carries evidence of the ongoing economic carnage overseen by the current Republican administration: "Crisis On Wall Street as Lehman Totters, Merrill is Sold, AIG Seeks to Raise Cash."

Let's briefly take a look at the Laffer/Moore presentation. Accompanied by a chart (below), they assert that "the poorest households had a roughly 25% increase in living standards from 1983 to 2005," a period during which "tax rates were cut dramatically across the income spectrum."

Well, that does sound good, doesn't it!

But what's the real story. Well, pretty much it's this: 25% of next to nothing is still next to nothing. In 1983, household income for the lowest one-fifth of Americans was $12,500 in "real" dollars, i.e., inflation adjusted. Today, that figure is up to almost $15,500.

Whoo-hoo--that's a whole $3000! Who knew the poor were getting so rich off of GOP policies.

Now, Laffer and Moore don't say this, but there little chart does: From 1992 to 1999--during the period of those supposedly awful Clinton years with his awful tax INCREASE--income in this group went up more sharply than at any other time.

Then, in 2000--let's see who became President then--income for the lowest 20% WENT DOWN. Gee, isn't that when Bush instituted his tax cuts? As of 2005--the last year shown on the chart--income had not recovered to its year 2000 level. So, using the Laffer Logic, Bush's tax cuts hurt this group, and they still haven't recovered.

The other thing we of course can't tell from this chart and the accompanying text is how the rich fared during the same period. Did their income go up MORE than 25% during this period? The only hint we get is the assertion that "the top 1% from 1996 saw an average decline in their real, after-tax incomes by 52% in the next 10 years."

Well, that is certainly a selective statistic. Why use 1996 for the top 1% when you started in 1983 for the bottom 20%? Could it be that the top 1% was quite well off in 1996, but took a big hit in the 2000 tech bust?

Also, they appear to be following the same 1% over a period of 10 years, rather than reporting on the amount of household income for anyone in the top 1% over that period. In other words, if someone with $1 million in after tax income in 1996 had only $500,000 in after-tax income in 2006, they would've move out of the top tier. But the wealthiest earners tend to be much older and they tend to retire over time. That doesn't mean they aren't still filthy rich--they just don't have as much taxable income.

This is always the problem with Laffer and Moore--they never want to compare apples to apples. The proper comparison would be a snapshot of the median after-tax income for the top 1% in 1983 with the top 1% in 2005. We don't have the data handy, but we'll guarantee you that group has gone up way more than 25% over that period. (Probably by several hundred percent.)

Finally, a couple other observations on their data. Laffer and Moore say that the poorest 20% still have a lot of income mobility because, over time, a large percentage of them move into higher income categories. That has little to do with tax policy, however. For example, one reason for this income mobility--which they don't mention--is that many people in the lowest 20% are very young, starting at the bottom of the job ladder. Over time, as they age, they make more money and move up. Gee, what a surprise.

Of course, the ultimate point of Laffer and Moore's highly misleading op-ed piece is to attack Barack Obama's fair tax plan. They conclude that "Mr. Obama will discover that when you put 'tax fairness' ahead of economic progress, you produce neither."

We say this: when you put statistical balderdash ahead of prudent economic principles--like paying for wars and having a fair tax code--you get exactly what we have on the Wall Street Journal's front page: "Crisis on Wall Street."