Mitch Daniels’ fuzzy math

The Bush budget director has a little problem with the truth.

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Mitch Daniels was an unusual choice to head the Office of Management and Budget (OMB) in the Bush White House. A former political operative and pharmaceutical executive, he was tapped for the position last year despite a lack of experience in the intricacies of the federal budget. Since then, Daniels has become a key figure in the administration, helping design policies and pressing publicly for their enactment.

His tenure is significant for more than his political success. It is another sign of the importance P.R. tactics play in American politics. The OMB director — once a budget expert — is now an operative chosen for his political skills, particularly his ability to sell the administration’s economic proposals in the media. In August, Daniels admitted as much, telling the Wall Street Journal that “[t]o the extent I bring anything … to this job, maybe it’s an ability to think about how a product, whether it’s Prozac or a president’s proposal, is marketed.” Predictably, he has displayed a disturbing tendency to make dishonest claims for political advantage on federal budget issues. With the debate about Bush’s new budget now well underway, it’s time to take a closer look at Daniels and his battles with the truth.

A pattern of dissembling

Daniels has focused most of his spin on the costs of the Bush tax cut and its effects on the federal budget, subjects that have dominated recent economic debate. Take his testimony last week before the Senate Budget Committee, for example [Real Player needed to use the link]. Daniels deceptively claimed that the recession is “the reason that our long-term best guesses as to total surpluses have changed.” His written testimony was only slightly less misleading, claiming that “changed economic and technical factors reduced the surplus by $1.345 trillion” and calling the recession “the largest but not the only economic factor reducing estimated surpluses.”



But according to the nonpartisan Congressional Budget Office (CBO), Daniels is wrong. The tax cut’s total cost came to $1.7 trillion (including increased interest payments), which was the single largest factor in the decline of the projected 10-year budget surplus. By contrast, economic and technical factors combined caused the surplus to decline by $1.6 trillion (including increased interest costs). Moreover, as Daniels should know, it is misleading to attribute technical adjustments to the recession when they are actually unrelated to economic growth.

For a time last year, Daniels did admit that the Bush tax cut was a factor reducing projected surpluses. On July 15, as a guest on ABC’s “This Week,” he stated that President Bush and a congressional majority “chose to share some of this large overcharge with the American people.” But when surplus estimates dropped unexpectedly late last year, he stopped conceding that the tax cut was a cause of declining surpluses, beginning with a Nov. 28 appearance at the National Press Club. Asked about his omission of the tax cut from his list of surplus-reducing factors, Daniels shifted into a political argument, proclaiming, “Thank goodness for tax cuts,” and saying they may keep the recession “short and shallow.” He never actually admitted that they were the primary factor in the long-term decline of the surplus.

Continuing the spin Feb. 5, Daniels submitted written testimony that claimed “this year’s 10-year baseline surplus forecast is just as big as that of 2 years ago … If we had taken a one-year timeout from 10-year guesswork, no one would say that anything was missing.” But something is missing. Even if the estimate hadn’t been announced last year, it would still be $1.7 trillion lower now than if the tax cut had not been enacted. Instead of a projected surplus of $1.6 trillion, we would be looking at a projected surplus of over $3 trillion. Daniels is attempting to shift the focus of the debate to changing surplus projections and thereby obscure the cost of the tax cut.

This pattern of dissembling extends beyond budget issues. In a Feb. 1 letter to the Washington Post, Daniels denied that Enron CEO Ken Lay lobbied him to retroactively repeal the corporate alternative minimum tax during an Oct. 11 phone call, saying Lay only asked about the prospects of an economic stimulus bill in Congress. Moreover, Daniels said, the provision “had not even surfaced [at the time of the call], and neither I nor anyone else to my knowledge had even heard of the idea.”

This is absurd.

First, Lay surely had a purpose in calling — according to the Wall Street Journal, Enron “headed the lobbying coalition of companies seeking repeal” of the tax. On Oct. 3, the Journal had reported that lobbyists were “making the case on Capitol Hill” for retroactive relief, an idea Daniels denies anyone had “even heard of.” And just one day after the Daniels-Lay call, the retroactive repeal provision — which would have refunded corporations for credits they received under the alternative minimum tax — passed a key House committee as part of the stimulus legislation. As the administration’s chief budget officer, Daniels was surely following the progress of this key economic legislation and understood Lay’s interest in its prospects.

Daniels also has a penchant for using the language of political jargon to attack administration opponents. While this is hardly unique, he blasts his opponents with a relish not seen in his technocratic predecessors. During a press briefing Feb. 4, he hyperbolically derided opponents of the tax cut for having “blamed [it] for everything except mad cow disease.” And last December on CNN’s “Late Edition”, he caricatured “tax and spend extremists in the Democratic Senate caucus,” calling them “people for whom taxes can’t be high enough and we can never spend too much government money.”

OMB’s dishonesty

Under Daniels, OMB is marketing some of its proposals with an often casual disregard for intellectual honesty. The administration’s new budget proposal features a number of statements like this:

“In the 1997 Budget, rising deficits were forecast totaling $1.4 trillion over a 10-year horizon. By the 2002 budget, steadily rising surpluses were projected over a 10-year period, totaling $5.6 trillion. Due to the events of last year, the latest projections are in between these wildly divergent estimates.”

The phrase “events of last year” suggests that the terrorist attacks and the recession caused the decline in the projected surplus, while obscuring the fact that 41 percent of the total surplus reduction is attributable to the tax cut (according to the CBO). Note how the statement is carefully constructed to be technically true — the tax cut was also an “event” that took place last year.

In the federal budget process, OMB has employed a number of accounting devices and misleading assumptions to conceal the true costs of tax cuts, restore budgets to balance artificially and otherwise tried to achieve political ends by tricky budgetary means. In the Bush budget plan, for example, the administration projects a return to surpluses in 2004 or 2005, but this ignores the cost of extending a provision protecting millions of middle income taxpayers from a tax increase under the individual alternative minimum tax, as Glenn Kessler reported in the Washington Post. There is near-unanimous agreement that this provision will have to be corrected at great cost, but OMB is silent on it in the budget proposal.

More than marketing

It is a matter of serious public concern that the federal budget director has become just another spinner dragging down public debate. Though he is a political appointee heading an executive agency, Daniels is also a public official with a larger responsibility to promote honesty in federal budget debates. But after more than a year at his position, he still frequently makes deceptive claims  often without challenge. Daniels may not recognize the difference from his previous job, but we must. It is unacceptable to market our nation’s economic policies like Prozac.

Research assistance by Dave Clifford.

Brendan Nyhan is a political scientist currently serving as a RWJ Scholar in Health Policy Research at the University of Michigan.

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