The Forgotten Five
Important Economic Facts Missing in the News

November 13, 1997
By Timothy Lamer
Director, Free Market Project

Missing Economic Fact #1
The Wealthiest Americans Pay Most of the
Federal Income Taxes

     "The President thinks [the GOP's] tax cuts are too generous to the wealthy," claimed ABC's John Cochran on the June 9, 1997 World News Tonight. Paula Zahn, on the June 30, 1997 CBS Evening News, said President Clinton "disagrees with key parts of the tax cut bills passed by the House and Senate because they give too many breaks to the wealthy and not enough to middle-income Americans."

     Cochran and Zahn are not alone. Most network reporters repeat the claims of those who oppose tax reform without putting those claims into context. Specifically, they fail to provide basic facts about who pays taxes and how tax rates affect the distribution of the tax burden.

     "According to IRS data," writes Daniel J. Mitchell, an economist at the Heritage Foundation, "the top one percent of income earners pay nearly 29 percent of the income tax burden, the top 10 percent pay more than 59 percent, and the top 20 percent pay more than 74 percent. The bottom 50 percent of income earners, on the other hand, pay less than five percent of income taxes."

     Mitchell also calls a myth the claim that lower tax rates necessarily mean the rich will pay less. "This outcome depends on how much tax rates are reduced," he argues. "History indicates that the revenue-maximizing rate is less than 30 percent. In other words, when marginal rates are higher than 30 percent, the rich probably will pay more if rates are lowered. The reason: Because incentives to hide, shelter, and underreport income are reduced."

     Mitchell points out that in the 1920s, the 1960s, and again in the 1980s, the wealthiest taxpayers shouldered more of the tax burden as their tax rates fell. For instance, "the Reagan years saw the top tax rate fall from 70 percent in 1980 to 28 percent in 1988. What happened to the rich? The top one percent went from shouldering 17.6 percent of the income tax burden in 1981 to paying 27.5 percent of the total in 1988. The top 10 percent saw their share climb from 48 percent in 1981 to over 57 percent in 1988."¹ Despite the large amount of time devoted to the tax issue by the networks, they rarely go into enough depth to provide basic information to viewers about the wealthy and taxes.

Sources For Journalists
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Missing Economic Fact #2
Government Programs Can Harm the Environment;
Free Enterprise Can Help It

     Early last year, backers of the federal sugar subsidy found themselves in an unusual position: their program was criticized in a major media outlet. "Strict quotas on cheaper foreign sugar maintain the support price levels," wrote New York Times reporter Eric Schmitt, "which critics say benefit a small number of wealthy plantation owners and encourage overproduction in environmentally sensitive areas like the Florida Everglades."²

     Schmitt is virtually alone in the news media. Other reporters simply assume that when it comes to the environment, free enterprise is bad and government is good. Print journalists rarely, and network journalists never, report on how some large federal programs are environmentally destructive, as well as burdensome to taxpayers and consumers.

     Jonathan Tolman of the Competitive Enterprise Institute argues that the federal peanut program, for instance, harms the environment. By allotting quotas by county, the government ensures that "peanuts are grown year after year in the same handful of counties and nowhere else. In some regions this means that extensive quantities of pesticides are used." Tolman reports, for example, that government quotas favor Georgia, even though "peanuts grown in Georgia use 13 pounds of pesticide per acre, while those grown in Texas require only three pounds per acre."³

     Network news viewers probably are also unaware that free enterprise can be pro-green, despite an array of private, for-profit efforts to protect the environment. Terry L. Anderson and Donald R. Leal of the Political Economy Research Center say that "enviro-capitalists" are a "new breed of environmental entrepreneurs," who use "the tools of capitalism instead of command-and-control tactics" in order "to preserve open space, develop wildlife habitat, and save endangered species." Anderson and Leal point out that the International Paper Company, for example, leases land in its Southern U.S. timber holdings for hunting and fishing, which has become an important source of profits for IP. They also note that a South African eco-tourism company gave landholders there a stake in environmental protection by making them shareholders in the company. This, in turn, created "large habitats for African wildlife, allowing wild animals to replace the cattle and crops that previously occupied the land."

     "Private property rights and free markets have contributed mightily to our economic wealth," Anderson and Leal write. "What few realize -- especially in Washington, D.C. -- is that they can contribute just as mightily to our environmental wealth."⁴ Perhaps because reporters haven't told them.

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Missing Economic Fact #3
Domestic Social Spending Continues to Soar

     During budget negotiations between the White House and Congress earlier this year, CBS correspondent Wyatt Andrews told viewers that President Clinton had "a budget plan that promises lower federal taxes, cuts in spending, and a balanced budget in five years, and that's the proposal from the President, a Democrat."

     From this story and almost all other reporting on this year's budget deal, one would think that Congress and the White House were imposing discipline on the federal budget and finally making difficult choices. One would be wrong.

     "Despite the dramatic decline in the budget deficit in recent years," reports Stephen Moore of the Cato Institute, "federal social spending is now at record levels both in real dollars and as a share of national output." Specifically, Moore notes that in "the past ten years federal domestic expenditures have risen by 34 percent after inflation. Total nondefense outlays now consume 17.5 percent of gross domestic product (GDP), up from 15 percent of GDP in the 1970s and ten percent in the 1960s."

     Republicans in Congress have done nothing to slow this growth, either. According to Moore, "In their first three budgets (FY 1996-1998), the Republicans have increased domestic spending by $183 billion compared to a $155 billion increase in the three years prior to GOP control of Congress."⁵ Furthermore, Bruce Bartlett of the National Center for Policy Analysis writes that because of additional spending on health and welfare in last summer's budget agreement, "the federal budget deficit next year actually will be higher than it would have been without the budget deal."⁶ Both Bartlett and Moore observe that the domestic spending cuts in the deal are all conveniently put off until 2002, when there will be a different President and Congress, and therefore are not binding.

     So how has the federal budget deficit fallen so precipitously? Moore points out that almost "all of the reduction in the budget deficit over the past decade has been attributable to the 'peace dividend' reductions in the military budget. Pentagon expenditures have fallen by $100 billion and three percentage points of GDP since the height of the Reagan Cold War buildup -- almost exactly the same amount that the budget deficit has fallen."⁷

     For reporters to portray Congress and the President as skinflints, when only one part of the federal budget (defense) is growing smaller, is simply inaccurate.

Sources For Journalists
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Missing Economic Fact #4
Social Security, as Currently Structured,
Will Bankrupt Future Generations

     During this past year's budget negotiations, Congress and the White House focused on achieving a balanced budget by the year 2002. Such a focus allowed them to not touch politically sensitive entitlement programs whose costs are set to explode shortly after 2002. Since they are politicians, this is understandable. What's not understandable is that reporters, for the most part, let them get away with it. The overwhelming majority of budget stories this year have simply ignored the catastrophic futures of Social Security and Medicare.

     Instead, they promoted the budget deal using the same language as politicians. For example, Paula Zahn, on the May 3 CBS Evening News cheerfully announced that "the forecast looks good for the breakthrough budget deal to balance the budget by the year 2002." Two days earlier, Dan Rather had called the deal "a possible legislative landmark." Two ABC reporters, John Cochran and Kevin Newman, said the agreement between the two parties was "historic," with Newman saying that "it looks like plenty of bipartisan good will in Washington." And NBC's Tom Brokaw heralded the "breakthrough deal" as the "best demonstration of bipartisan spirit since the Gulf War in the capital."

     But none of these reporters were skeptical enough of both parties' glorious claims to point out that the Social Security Administration admits Social Security will begin running deficits by about 2011. As Stephen Moore of the Cato Institute argues, even "that may be an overly optimistic assessment. In four of the last six reports of the [Social Security Administration's] trustees, the number crunchers have had to fast-forward the date when Social Security starts losing money." According to Moore, "Social Security has an unfunded long-term liability of roughly $5.5 trillion -- which is larger than the entire national debt." He also points out that in "1950 there were 17 workers for every retired person. Today there are three. By 2030 there will be just two." This means that to "keep the system solvent at the current benefit levels (along with Medicare) would require the [payroll] tax rate to rise from 15 percent to as much as 30 percent."⁸ Either that or it's back to enormous deficits.

     This is a serious news story, but instead of reporting it most reporters were busy calling an agreement which left entitlements unreformed "a breakthrough budget deal" and "a legislative landmark" and "an historic agreement."

Sources For Journalists
Whom To Call For More Details On This Missing Fact

Missing Economic Fact #5
Government Health Care Mandates Increase the
Number of Uninsured Americans

     Viewers of the October 20 NBC Nightly News were greeted by Tom Brokaw, in his introduction to that evening's first story, telling them that "American health care is in crisis, and it's only getting worse fast." In the ensuing report, correspondent Robert Hager said that one of the problems in U.S. health care is "the number of Americans with no health insurance is greater than ever -- 41 million uninsured now; that number growing by an additional one million a year."

     The problem of uninsured Americans has been a constant theme in health care reporting this decade. But as with NBC's Hager, few reporters actually attempt to explain why the number of uninsured Americans seems to grow by the year.

     One reason: misguided government regulation. "For more than 30 years, state legislatures have passed laws driving the cost of health insurance higher," explain John C. Goodman and Merrill Matthews Jr. in a National Center for Policy Analysis (NCPA) report. "Known as mandated health insurance benefit laws, they force insurers, employers and managed care companies to cover -- or at least offer -- specific providers or procedures not usually included in basic health care plans." They note that "while there were only seven state-mandated benefits in 1965, there are nearly 1,000 today," including requirements for "such non-medical expenses as hairpieces, treatment for drug and alcohol abuse, pastoral and marriage counseling."

     Most importantly, these mandates have produced some unintended consequences. Goodman and Matthews cite a National Bureau of Economic Research survey which "found that the cost of mandated benefits is usually borne by employees in the form of reduced wages, reduced work hours or loss of employment." Their own analysis, prepared for NCPA by the actuarial firm Milliman & Robertson, finds that the 12 most common mandates together "increase the cost of insurance by as much as 30 percent." This causes some small businesses to cancel their employees' insurance policies, increasing the nation's pool of uninsured workers.

     Goodman and Matthews point out that the federal government has recently taken up this practice, imposing "two mandates that affect health insurance policies nationwide." These two "may not increase the costs of health insurance significantly but, as in the states, once the door is open every special interest will hurry through to besiege the legislature."

     "When the legislators succumb and the dust settles," they conclude, "health insurance will cost more, employers and individuals will cancel more policies and Congress will face a growing uninsured 'crisis' -- a crisis largely of its own making."⁹ Responsible reporters will include such arguments in their stories about health care policy.

Sources For Journalists
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NOTES

1) Mitchell, Daniel J., "Class Warfare Tax Policy: Myth and Reality," Heritage Foundation Backgrounder No. 1131, July 18, 1997. (www.heritage.org)

2) Schmitt, Eric, "House Vote Keeps Peanut and Sugar Price Supports," The New York Times, February 29, 1996, p. A19.

3) Tolman, Jonathan, "Federal Agriculture Policy: A Harvest of Environmental Abuse," Competitive Enterprise Institute's Environmental Studies Program, August, 1995. (www.cei.org)

4) Anderson, Terry L. and Leal, Donald R., "The Rise of the Enviro-Capitalists," The Wall Street Journal, August 26, 1997, p. A16. (www.perc.org)

5) Moore, Stephen, "GOP Budget Revolution: Promises Made, Promises Broken," Cato Institute Policy Analysis No. 281, September 2, 1997. (www.cato.org)

6) Bartlett, Bruce, "Back Home Explaining the 'Dream Deal'," The Washington Times, August 15, 1997, p. A16.

7) Moore, op. cit.

8) Moore, Stephen, "Solving the Social Security Paradox," paper presented to Association of Private Enterprise Education, Washington, D.C., April 13, 1997. (www.cato.org)

9) Goodman, John C. and Matthews Jr., Merrill, "The Cost of Health Insurance Mandates," National Center for Policy Analysis Brief Analysis No. 237, August 13, 1997. (www.ncpa.org)

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