[R-G] Why Obama Is Proposing Whopping Corporate Tax Cuts, and Why He's Wrong

[Sid Shniad]

http://www.commondreams.org/view/2010/09/07-8

 September 7, 2010<http://robertreich.org/post/1079916360/why-obama-is-proposing-whopping-corporate-tax-cuts-and>
Why
Obama Is Proposing Whopping Corporate Tax Cuts, and Why He’s Wrong

by Robert Reich

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.

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.

The proposals also make it harder for Republicans to argue the Bush income
tax cuts should be extended for the richest 3 percent of taxpayers because
small businesses need it. Obama's corporate tax cuts would appear to do the
trick.

The White House probably figures even if Republicans agree to the proposed
tax cuts, nothing will come of it. Congress will be in session for only
about two weeks between now and the midterm elections so it's doubtful these
proposals would be enacted in any event.

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.

Robert Reich is Professor of Public Policy at the University of California
at Berkeley. He has served in three national administrations, most recently
as secretary of labor under President Bill Clinton. He has written twelve
books, including The Work of
Nations<https://www.amazon.com/dp/0679736158?tag=commondreams-20&camp=0&creative=0&linkCode=as1&creativeASIN=0679736158&adid=17JKFT8B6TV42VYHN4W2&>,
Locked in the Cabinet<https://www.amazon.com/dp/0375700617?tag=commondreams-20&camp=0&creative=0&linkCode=as1&creativeASIN=0375700617&adid=0ZKBK1FPRZS8XNR922Q3&>,
and his most recent book,
Supercapitalism<https://www.amazon.com/dp/0307277992?tag=commondreams-20&camp=0&creative=0&linkCode=as1&creativeASIN=0307277992&adid=0SY1JKV1XY667K67E4N4&>.
His "Marketplace" commentaries can be found on
publicradio.com<http://marketplace.publicradio.org/collections/coll_display.php?coll_id=20102&refid=0>and
iTunes<http://marketplace.publicradio.org/collections/coll_display.php?coll_id=20102&refid=0>.