Why Obama Is Proposing Whopping Corporate Tax Cuts -- and Why He's Wrong

[depakid]

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.

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.

More: http://www.huffingtonpost.com/robert-reich/why-obama-is-proposing-wh_b_707398.html

[Bonhomme Richard]

1. Bottom line is that companies do not need money for R & D

If the government wants to give them money then great. They aren't stupid. If they didn't get any money they would spend their own money only to stay competitive and stay i business. It's as simple as that.

[napi21]

2. I think he has a different aim. He repeated several times today that the Pubs say NO

to EVERYTHING! He said they say no to things that use to be TEIR IDEAS! I think he's trying to prove that to the Pub voters! even when THIS DEM President suggests something that is in the REPUB interest, THEIR elected Pubs say NO!

[doc03]

3. We will see, all they have to say is Obama has

finally seen the light and adopted our ideas.

[Massacure]

4. These aren't really tax cuts though, are they?

I thought he was eliminating other write offs to keep these budget neutral.

[Abq_Sarah]

6. The ability to write off purchases

The year you purchase them, vs depreciating them over multiple years isn't a freaking "tax cut".

[Citizen Worker]

5. Productivity creates supply, wages create demand. Absent decent paying jobs people simply will not

spend.

[Demeter]

7. Pushing on a String

Tax cuts do nothing for lack of income and lack of customers due to lack of demand and the means to pay.