[Dialogue] A (Tax) Cut Below

Thu Nov 17 12:35:56 EST 2005

Colleagues, another one from Molly. Peace, Harry 
  _____  

AlterNet

A (Tax) Cut Below

By Molly Ivins, AlterNet
Posted on November 16, 2005, Printed on November 17, 2005
http://www.alternet.org/story/28294/

AUSTIN, Texas -- One of our better political commentators, Tom Tomorrow
<http://www.workingforchange.com/column_lst.cfm?AuthrId=43> , has boiled
down our entire current political debate to one question:
<http://www.workingforchange.com/comic.cfm?itemid=19887> "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 us 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 promised, 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. 

Molly Ivins writes about politics, Texas and other bizarre happenings. 

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