“OHHHHHHH,” said Rep. Bill Archer, chairman of the House Ways and Means Committee. “Family economic income!” Archer spoke with mock surprise when on June 11 assistant treasury secretary Donald Lubick cited that concept as the committee was drafting the tax bill later passed by the House in slightly modified form.
What is “family economic income”? Archer asked. John Karl Scholz, Treasury’s top economist on tax issues, stepped forward to answer. Well, he said, there’s the wage-earner’s actual income, of course, plus a few other things. Scholz explained them: an estimate of unreported and under-reported income; IRA and Keogh deductions; Social Security and welfare; fringe benefits; build-up of pensions, IRAs, Keoghs, and life insurance; tax-exempt interest; and “imputed rent.” Imputed rent? That’s the rent a person would pay for his house if he didn’t own it, Scholz said. “This is incredible,” responded Archer. Americans will never accept all that as part of their annual income.
They may never hear about the idea. It was midnight when Archer asked Clinton administration officials to explain family economic income (FEI), and the public was hardly alert to what was happening in Washington. Few reporters were around, either, and the press has scarcely noticed FEI. Yet it’s the chief basis for President Clinton’s charge that the House and Senate tax bills lopsidedly favor the rich. This claim is purposely deceptive. For the attack to work — and it is effective — the president must create millions of wealthy taxpayers out of whole cloth. And FEI does exactly that.
FEI is not a complicated concept. It simply adds another 50 percent to what people receive in their paychecks. Thus, it turns millions of middle-income people into rich folks with six-figure incomes. Using these inflated figures, Clinton has grounds to claim that households with income over $ 93,222 would get 65 percent of the benefit from the GOP tax bills. Using a figure closer to “adjusted gross income” — the amount people actually pay taxes on — Republicans insist 75 percent of their tax cuts will go to households making $ 75,000 or less. True, Republicans count only the first five years of the cuts, when some tax breaks (inheritance, IRAs) are not fully implemented. But the impact of any tax measure after five years is purely speculative.
Why haven’t reporters zinged the administration for invoking FEI, which even Rep. Charles Rangel, the ranking Democrat on Ways and Means, has conceded is an inappropriate measure? For one thing, they haven’t devoted much coverage to the tax fight at all. Also, it’s easier to cite competing claims without evaluating them. (One journalist who did an evaluation, Matthew Miller of U.S. News & World Report, came to the astounding conclusion that Clinton’s claims were less distorted than the GOP’s.) More typical was the June 16 report of NBC’s White House correspondent, David Bloom: “A preliminary analysis by Mr. Clinton’s Treasury Department concludes that if you divided taxpayers into five groups, the top 20 percent with family incomes over $ 93,000 get two-thirds of the tax cuts under the Republican plan. Republicans dispute those numbers.”
The main reason for the lack of media interest, however, is structural: Most reporters aren’t sympathetic to Republicans on taxes, and the White House is better at getting its message out anyway. Certainly Republicans have tried to draw attention to the phoniness of Clinton’s tax claims. Archer has issued detailed press releases with charts and tables to expose FEI. One showed that under FEI, the supposed income of an earned-income-tax-credit recipient making $ 24,000 would leap to $ 41,173. “We talk about this at every press conference,” said Sen. Paul Coverdell of Georgia. “We talk about it on the floor, off the floor, at home. It’s just slow in developing. The president has a huge ability to move a piece of information in 24 hours. We have no comparable ability.”
A few reporters have caught on. Art Pine of the Los Angeles Times wrote skeptically about FEI and said it may give Democrats a “small propaganda advantage.” Carl Cameron of Fox News Channel reported on a family that was outraged to discover its $ 65,000 income bloated to more than $ 93,000 in administration calculations.
But the administration is unapologetic. Budget director Franklin Raines said using FEI “from a technical standpoint . . . is quite fair.” At Treasury, officials played up a report by the Congressional Research Service that defends FEI as a legitimate tool in the current tax debate. They also noted the Reagan and Bush administrations used a version of FEI from time to time. If Republicans did, said Coverdell, “we were as crazy as they are.”
For Clinton, using FEI isn’t crazy, it’s necessary. Republicans crafted tax bills in both houses that are oriented to the middle class, particularly through new benefits like the child tax credit and deductions for college expenses. Republicans shied away from cutting individual income tax rates because that would tilt the distribution tables in favor of the rich. According to the Joint Economic Committee, the GOP cuts will leave the top 20 percent paying the same share of the income tax they do today, 63 percent. This didn’t give Clinton a basis for zapping Republicans for aiding the rich. So he invented one.
Fred Barnes is executive editor of THE WEEKLY STANDARD.
