Are They Stupid, Or Lying?

by Molly Ivins

One of our better political commentators, Tom Tomorrow, has boiled down our entire current political debate to one question: "Are they stupid, or are they lying?" This seems to me pretty much how it goes, each side reduced to accusing the other of living in an alternate reality.

Let's see if we can't find a way to frame the question that would allow an answer from empirical evidence both sides can agree on. When it comes to many actions of the Republican Congress, there is now a substantial track record of results. The evidence is in.

For five years now, the Republicans have promised U.S. that business tax cuts would strengthen the economy, create new jobs, spur growth, foster investment, and bring beer and skittles for everyone. Over five fiscal years, the tax cuts have had a direct cost to the treasury of $860 billion -- with interest, $929 billion.

Lee Price of the Economic Policy Institute points out: "The fact that all major economic indicators are higher today than in early 2001 does not mean the tax cuts have been beneficial. Since the Great Depression, the resilient U.S. economy has always had gains over such four-year periods. The appropriate question to ask is: How well has the economy performed compared to similar periods in the past? If the last four years of tax cuts had worked as promized, the economy should have done better than in previous cycles, when taxes were either not cut or cut much less." We all down for that?

Unfortunately, the EPI concludes, "By virtually every measure, the economy has performed worse in this business cycle than was typical of past ones, including that of the 1990s, which saw major tax increases."

In 2001, the economy entered a recession not long before the first Bush tax cuts -- what the economists call a "shallow recession" (why don't they ever talk to the people whose unemployment insurance ran out?). The economy has been in an expansionist phase since November 2001. EPI found an annual growth rate of wage and salary income of 1.3 percent, below all six previous cycles and nearly 2 percentage points below their average 3.2 percent growth.

As for the cuts supposed to spur investment: "Business investment in structures, equipment and software (so-called 'non-residential investment') was only 3.6 percent higher in the second quarter of 2005 than it had been in the first quarter of 2001. That is less than half of the 8.2 percent growth found in the worst of the six prior cycles, and but one-eighth of the 27.5 percent growth rate in the strongest prior cycle."

The EPI study goes on to provide charts, bells and whistles measuring all this six ways from Sunday. The series of major tax cuts enacted in the past four years has not strengthened the economy. Every broad measure -- GDP, jobs, personal income and business investment -- has fared worse over the period than in previous cycles, contrary to Republican predictions. It turns out the one tax cut that really did help snap the recession early was that middle-class tax rebate the Democrats stuck into the Bush bill.

OK, bad news. So, what did happen to all that money from tax cuts that was supposed to go into investment? It didn't go into higher wages -- that's the factor that accounts for the generally dismal public perception of this economy. People don't see their income going up. Well, shareholders got more. Executives continued to get staggering pay packages. The increases range from obscene to excessive. I'll say this for America's corporate executives, they certainly weren't cowed by the Enron, Tyco, etc., scandals. There were a lot of stock buy-backs and acquisitions, but not much investment that creates jobs.

Well, I'm sorry it didn't work out the way the Republicans thought it would -- that's why many argued against such cuts in the first place. The question now is, so why do it again? Why give the oil industry more tax breaks? Why do they keep doing it? Is it ideology, or is it stupidity?

Corporate tax revenues are now at historic low levels as a share of federal revenue, going back to the 1930s. That means individuals have a much larger share of the total tax burden.

One of my favorite happy horsepoop tax cuts was the six-month, one-time special "ally-ally-in-free" on foreign profits. Passed in 2004, this monumentally stupid piece of corporate pork (laughingly named the Incentive to Reinvest Foreign Earnings in the United States and part of the also laughingly named American Jobs Creation Act of 2004) was a special favor to drug and high-tech companies (read, big campaign contributions) who had been storing their profits offshore. Then-Sen. John Breaux said at the time, "The company that left Louisiana is going to pay a 5 percent tax on the widgets they make overseas, and the company that stayed in Louisiana is going to pay a 35 percent tax. If that isn't an incentive to leave, I don't know what is."

The Republicans specifically rejected an amendment to that break that would have required the companies to invest the money. So did all those foreign profits flow home and get invested in new plants and create lots of jobs? No. But sales of corporate jets are up.