I guess I should be mad at Ezra Klein for his report President Obama was going to propose a payroll tax cut, but with twenty-twenty hindsight Ezra does get it right today – Wonkbook: Obama proposes $50B for infrastructure, $100B for R&D tax credit; Orszag’s first NYT op-ed
But there’s a $50 billion infrastructure investment program, a $100 billion proposal to make the R&D tax credit permanent, and a $200 billion idea to allow companies to deduct the full cost of the capital investment in 2011. Add in the small business bill that’s sitting still in the Senate, and the anti-business White House has thrown its muscle behind hundreds of billions of dollars in tax cuts and credits for, well, business.
Speaking of tax cuts and credits, former OMB director Peter Orszag makes his debut in the New York Times this morning with a column arguing that the Bush tax cuts should be extended until 2013 — and then allowed to lapse altogether. Yes, even the middle-class ones. That might be more important than you think: Though it’s true that money can’t buy you happiness (at least not after $75,000 a year), it can buy you a feeling of deep satisfaction.
There is no reason to up taxes on those making below the $250K threshold. What should bother everyone if the reasoning behind keeping the Bush cuts for those making over $250K. Economist Michael Bordo sums up the political dogma that has infested much of economics like bed bugs – Yes, their benefits outweigh their costs
THE Bush tax cuts should not be allowed to expire at the end of 2010. There are two good reasons. The first is that a tax increase, by reducing aggregate demand, would damage the wobbly US recovery. Second, even if taxes were only allowed to rise on the 3% of families earning over $250,000 per year, the higher taxes on those groups—which include many of the nation’s entrepreneurs—would hamper investment and future economic growth.
The potential long run costs of perpetuating the tax cuts in terms of a larger fiscal deficit and higher debt-to-GDP ratio would be less than the costs of lower real activity in the short-run and lower economic growth in the long-run of ending them. Higher output and growth would eventually reduce the elevated deficits and debt ratios.
The Bush cuts were made over the course of 2001-2003. Where was the economic benefit for the middle-class or the economy as a whole. The nation lost three trillion dollars in wealth, but the rich got richer. Bush had an anemic job creation record. The nation’s business and entrepreneurs got richer during the Bush years and are still – despite a real unemployment rate of around 16% – raking in profits. Bordo’s argument must be ivory tower based with the window closed on what is happening in the real world. Business has the money to hire and invest, but have no economic incentive to do so when they can make just as much money by scaling back operations. If we’re going to keep the Bush cuts than at least be honest about it rather than covering up the reasons in economic doublespeak. Ezra’s explanations was closer to the mark – we’ll probably be keeping them, regardless of how fiscally irresponsible they are because those cuts make rich people smile. Robert Reich is a smart guy and an adult, but he obviously doesn’t understand that the nation ain’t in no darn mood for smart adult conversations right now, Why Obama Is Proposing Whopping Corporate Tax Cuts, and Why He’s Wrong
President Obama reportedly will propose two big corporate tax cuts this week.
One would expand and make permanent the research and experimentation tax credit, at a cost of about $100 billion over the next ten years. The other would allow companies to write off 100 percent of their new investments in plant and equipment between now and the end of 2011 at a cost next year of substantially more than $100 billion (but a ten-year cost of about $30 billion since those write-offs wouldn’t be taken over the longer-term).
The economy needs two whopping corporate tax cuts right now as much as someone with a serious heart condition needs Botox.
The reason businesses aren’t investing in new plant and equipment has nothing to do with the cost of capital. It’s because they don’t need the additional capacity. There isn’t enough demand for their goods and services to justify it. Consumers aren’t buying because they’re trying to come out from under a huge debt load, including mortgage debt; they have to start saving because their nest eggs are worth substantially less; and they’ve lost or are worried about losing jobs and pay.
In any event, small businesses don’t have enough profits against which to use these tax credits and deductions, and large corporations are sitting on over a trillion dollars of profits and don’t need them. ( see Newsweek link)
Republicans and corporate lobbyists have been demanding tax cuts on corporate investments for one reason: Big corporations are investing in automated equipment, robotics, numerically-controlled machine tools, and software. These investments are designed to boost profits by permanently replacing workers and cutting payrolls. The tax breaks Obama is proposing would make such investments all the more profitable.
In sum, Obama’s proposed corporate tax cuts (1) won’t generate more jobs because they don’t put any cash in worker’s pockets (as would, for example, exempting the first $20,000 of income from the payroll tax and making up the difference by applying the payroll tax to incomes over $250,000); (2) will subsidize companies to cut even more jobs; and (3) will cost $130 billion — money that could better be spent helping states and locales avoid laying off thousands of teachers, fire fighters, and police.
I’m not changing my position no matter how much sense Robert makes. Let Obama and Democrats slash and burn as much revenue as possible and let the Republican president and Congress in 2012 worry about savaging what’s left of the wreck. Republicans are responsible for the train wreck in the first place. They think drowning government and the lives of millions of people is fun, than they can enjoy trying to resuscitate them.
* I genuinely support the R&D credit. It is direct enough to have some long term benefit especially in moving toward a more progressive energy policy. That said this package is probably dead in the water – The Great Orange Man John Boehner (R-OH) speaks.