Why Obama is proposing whopping corporate tax cuts, and why he's wrong

[Enrique]

Robert Reich

http://www.dailymarkets.com/economy/2010/09/07/why-obama-is-proposing-whopping-corporate-tax-cuts-and-why-hes-wrong/

President Obama reportedly will propose two big corporate tax cuts this week.

(...)

The economy needs two whopping corporate tax cuts right now as much as someone with a serious heart condition needs Botox.

(...)

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 breaks (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.

So why is Obama proposing them? To put Republicans in a bind. If they refuse to go along he can justifiably say they have no agenda other than obstruction. After all, the only thing they’ve been arguing for is lower taxes. On the other hand, if Republicans agree to support these corporate tax cuts, Obama can claim a legislative victory that will help Democrats neutralize their opponents in the upcoming elections.

(...)

But this cynical exercise could backfire if Republicans call Obama’s bluff and demand the corporate tax cuts be put on a fast track and get signed into legislation before the midterms.

More troubling, Obama’s whopping proposed corporate tax cuts help legitimize the supply-side dogma that the economy’s biggest obstacle to growth is the cost of capital, rather than the plight of ordinary working people.

[SoxFan]

1. Reich has never figured it out

Reich has always underestimated the value of capital investment as a driving factor in economic growth. He bitched and moaned about this endlessly in the Clinton years, and his influence evaportated rapidly. Since the Clinton years gave us a damn good economic climate, I really can't give Reich a ton of credibility anymore.

[ClarkUSA]

2. You're right. Freeing up cash to invest in growth will create jobs and increase demand for goods.

Obama to Propose Tax Write-Off for Capital Investments

WASHINGTON — As part of his emerging program to jolt the economic recovery from its stall, President Obama will call this week for allowing businesses to deduct from their taxes through 2011 the full value of new equipment purchase, from computers to utility generators, to increase demand for goods and create jobs.

The upfront deduction would allow businesses of all sizes to keep more money now and would give large corporations, many of which are sitting on cash because of uncertainty about the economy, an incentive to spend and invest.

http://www.nytimes.com/2010/09/07/us/politics/07tax.html?hp

[vaberella]

3. Needs to be posted independently to counter the op.

Thanks Clark.

[chimpymustgo]

4. Corporations - SITTING ON CASH - get MORE?

[SoxFan]

5. Have you done any reading on economic policy?

Reich is the outlier in Democratic policy circles.

This discussion goes back to the 1992 campaign, when wonks like Rob Shapiro (Clinton) and Lester Thurow (Tsongas) advocated for tax policies that promoted productive investment and long-term productivity rather than simply cutting baseline corporate income tax rates.

[chimpymustgo]

6. I do agree policies should encouragemore investment - especially for R&D, which many companies

have cut back to increase profits.

But as an expenditure during such tight times - I'm not sure (when we can hardly pass UE benefits). I hope it will work - and bring jobs. Solid, concrete JOBS have to be the target of spending right now.

[xchrom]

7. recommend