Obama, eight weeks before the election, has decided to adopt one of many ideas the Republicans put forth in February 2009: a tax break for businesses. As this report explains:
Companies can now deduct new investment expenses, but over a longer period of time—three to 20 years. The proposed change, which would let companies keep more cash now, is meant to give companies who may be hesitant to invest an incentive to expand, acting as a spur to the overall economy. …
Under current law, if a company spends $10 million on a new factory, it gets to deduct the full amount of the cost over a period of between three and 20 years, depending on the investment. So it cuts its stated pre-tax profits by a varying amount each year, thus reducing taxes until the cost of the investment has been written off.
Under the new proposal, the company would get to deduct the full $10 million in the first year. That would give it an immediate cash infusion to offset the costs of investment. It would also give certainty that the full tax benefit would be realized. Companies often don’t get to write off the full cost of an investment over an extended time.
It is not a bad idea, but it simply isn’t as critical as an extension of the Bush tax cuts. Republicans and business leaders were quick to point this out:
“The White House is missing the big picture. These aren’t necessarily bad proposals, but they don’t address the two big problems that are hurting our economy—excessive government spending, and the uncertainty that Washington Democrats’ policies, especially their massive tax hike, are creating for small businesses,” said House Minority Leader John A. Boehner (R, Ohio). …
The best thing to do is to get rid of uncertainty, and that includes the cliff we’re falling off with all these [tax] provisions that are expiring,” said Bill Rys, tax counsel for the National Federation of Independent Business, a small-business group.
Many NFIB members also are concerned about a new requirement for reporting purchases of more than $600 to the Internal Revenue Service, he added. He questioned whether many business owners would choose to buy more equipment, at least until sales pick up.
It is, on the one hand, a giant concession that tax cuts matter. On the other hand, it leaves the Obama team without any reasoned defense for letting the Bush tax cuts expire — or, for that matter, loading up employers with new mandates. (“Many NFIB members also are concerned about a new requirement for reporting purchases of more than $600 to the Internal Revenue Service.”) As one businesswoman put it, “If this will be offered as a tradeoff for raising the top two rates, it’s a non-starter.”
Nor is it even clear that this is all that helpful at this point:
N. Gregory Mankiw, of Harvard University, and another former CEA chairman under President Bush, questioned whether the Obama proposal would have a big impact. Businesses can already take out a bank loan at extremely low interest rates to pay for new investments in plants and equipment, but they are not doing so, he said. It’s unclear why they would make those investments for a tax break.
And it is even less clear why we should be giving with one hand and taking away with the other. (Jay Timmons, executive vice president of the National Association of Manufacturers: ”The good news [is that] the administration recognizes that manufacturing is key to getting the economy back on track and ensuring we are able to sustain economic growth and job creation. But you can’t do that if you’re penalizing one sector of manufacturing while trying to incent another.”)
The most principled position for conservatives is to accept the president’s tax cut (on the Milton Friedman theory that we should support any tax cut, any time) and demand that the Bush tax cuts be retained. Really, if tax cuts are good and the economy is in the tank, why not?