Obama to Propose Massive Tax Breaks for Businesses to Invest in Growth

[FR7 Baptist]

President Obama, in one of his most dramatic gestures to business, will propose that companies be allowed to write off 100 percent of their new investment in plant and equipment through 2011, a plan that White House economists say would cut business taxes by nearly $200 billion over two years.

The proposal, to be laid out Wednesday in a speech in Cleveland, tops a raft of announcements, from a proposed expansion of the research and experimentation tax credit to $50 billion in additional spending on roads, railways and runways. But unlike those two ideas, both familiar from Obama's 2008 campaign, the investment incentive would embrace a long-held wish by conservative economists that had never won support from either Republican or Democratic administrations.

Read More

 

[Ruiz]

Well, what I like about it. It seems, on the face, to be a tax cut.

What I do not like about it. It seems, on the face, more manipulation that if you do "x" then you get a break. I don't like that philosophy. What about the small business who could not afford to expand and needs the break to just stay in business? I hate these "if you do what I say then I will give you a carrot" approach to taxes.

Rather, I think if they cut the corporate tax rate in 1/2, they would see some companies survive and some companies expand.

I figure the Republicans, if it is what they say it is with nothing hidden, will support this.

Yet, the biggest problem is that no one is talking about sound financial money and he is refusing to talk about the debt. Again, this proposal is poor in that it could cause another bubble by making money cheaper for certain activities. That bubble may get us out of our current problems but could result in greater problems in the future.

Across the board tax cuts for everyone seems more wise.

 

[targus]

When Republicans talk tax cuts the Demoncrats always want to know how it will be paid for.

So how will Obama pay for this tax cut?

My understanding is that it wil be paid for by other tax increases on business - so in the end it will be a wash - with no economic effect.

 

[targus]

"President Obama, in one of his most dramatic gestures to business, will propose that companies be allowed to write off 100 percent of their new investment in plant and equipment through 2011, a plan that White House economists say would cut business taxes by nearly $200 billion over two years."

This isn't a tax cut at all - merely a tax deferment.

Business can currently write off investments in plant and equipment - just not all in one year. Asset purchases are written off over the life of the asset.

What happens under Obama's plan is that new assets purchased through 2011 will be written off in the year that they are purchased - but that means that there is no write off in the following years.

So the net tax effect is zero.

This will be like the house purchase credit where people who already wanted to buy a house ran out and did so in time to get the tax credit - but then the sale of houses just fell off the cliff following the expiration of the credits.

Or it is like the new car rebates that caused new car buyers to rush in to get their cars at a lower price - but the sale of new cars fell off the cliff when the auto companies ended the rebates.

We will see the same effect here - an artifical stimulation of economic activity - followed by a sever slump - because no real change has occured in the economic situation.

Just more short term thinking - for no other purpose than the next election cycle.

 

[Ruiz]

"President Obama, in one of his most dramatic gestures to business, will propose that companies be allowed to write off 100 percent of their new investment in plant and equipment through 2011, a plan that White House economists say would cut business taxes by nearly $200 billion over two years."

This isn't a tax cut at all - merely a tax deferment.

Business can currently write off investments in plant and equipment - just not all in one year. Asset purchases are written off over the life of the asset.

What happens under Obama's plan is that new assets purchased through 2011 will be written off in the year that they are purchased - but that means that there is no write off in the following years.

So the net tax effect is zero.

This will be like the house purchase credit where people who already wanted to buy a house ran out and did so in time to get the tax credit - but then the sale of houses just fell off the cliff following the expiration of the credits.

Or it is like the new car rebates that caused new car buyers to rush in to get their cars at a lower price - but the sale of new cars fell off the cliff when the auto companies ended the rebates.

We will see the same effect here - an artifical stimulation of economic activity - followed by a sever slump - because no real change has occured in the economic situation.

Just more short term thinking - for no other purpose than the next election cycle.

I have not (and few have) seen the details. However, you are right. Targeted tax cuts often creates bubbles. Like your illustration of the cash for clunkers. This created a short term bubble that died out and gave a short term incentive but the bubble busted again. As well, this hurt the lower incomes more as it made used cars more expensive because supply was lower. The net effect was that the rich got a tax break that was paid for by the poor.

I agree, get rid of the targeted tax break and give an across the board tax cut.

 

[HankD]

When Republicans talk tax cuts the Demoncrats always want to know how it will be paid for.

So how will Obama pay for this tax cut?

My understanding is that it wil be paid for by other tax increases on business - so in the end it will be a wash - with no economic effect.

Not by another bubble but by the inflation of a hot air baloon (which always return to earth) called the expansion of the money supply.

Something for which you and I would go to jail.

Print more money!

HankD

 

[FR7 Baptist]

I have not (and few have) seen the details. However, you are right. Targeted tax cuts often creates bubbles. Like your illustration of the cash for clunkers. This created a short term bubble that died out and gave a short term incentive but the bubble busted again. As well, this hurt the lower incomes more as it made used cars more expensive because supply was lower. The net effect was that the rich got a tax break that was paid for by the poor.

I agree, get rid of the targeted tax break and give an across the board tax cut.

I thought the idea that tax cuts create bubbles is outright crazy and insane.

 

[targus]

I thought the idea that tax cuts create bubbles is outright crazy and insane.

Targeted tax cuts or tax credits distort the market and create bubbles or pockets of decreased economic activity.

Across the board tax cuts allow the market to function more on a supply demand basis.

 

[carpro]

When Republicans talk tax cuts the Demoncrats always want to know how it will be paid for.

So how will Obama pay for this tax cut?

It doesn't really matter.

He doesn't worry about how to pay for anything.

Especially with his re-election on the line.:smilewinkgrin:

 

[billwald]

I heard the latest proposed real estate legislation explained on Coast. Does this make sense?

(Say) A guy bought a house for $400K with a loan from a community bank. The value dropped to $250K. The community bank is forced to sell out by the FDIC to a bank which is "to big to fail." The big bank keeps the house on the books at $200K because that is about what they would net if they foreclosed but the mortgage paper still says $400K. No one is making payments on the mortgage.

Under the new legislation, the big bank agrees with the FDIC to reduce the $400K on the mortgage to $360K and the FDIC insures the the new loan. The big bank forecloses and collects $360K from the FDIC, $160K over their book value on the house. The guy still loses his house. The FDIC owns the house.

 

[targus]

I heard the latest proposed real estate legislation explained on Coast. Does this make sense?

(Say) A guy bought a house for $400K with a loan from a community bank. The value dropped to $250K. The community bank is forced to sell out by the FDIC to a bank which is "to big to fail." The big bank keeps the house on the books at $200K because that is about what they would net if they foreclosed but the mortgage paper still says $400K. No one is making payments on the mortgage.

Under the new legislation, the big bank agrees with the FDIC to reduce the $400K on the mortgage to $360K and the FDIC insures the the new loan. The big bank forecloses and collects $360K from the FDIC, $160K over their book value on the house. The guy still loses his house. The FDIC owns the house.

Of course it doesn't make any sense - neither did forcing banks to make mortgage loans to borrowers who had no hope of ever repaying.

No doubt Barney Frank is going to score big on this scheme too.