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White House Considers Tax Cuts for Business

Via WaPoWhite House considers pre-midterm package of business tax breaks to spur hiring

the White House is seriously weighing a package of business tax breaks – potentially worth hundreds of billions of dollars – to spur hiring and combat Republican charges that Democratic tax policies hurt small businesses, according to people with knowledge of the deliberations.

Among the options under consideration are a temporary payroll-tax holiday and a permanent extension of the now-expired research-and-development tax credit, which rewards companies that conduct research into new technologies within the United States.

Several thoughts:

1)  This comes across as desperation, and desperation of two types:  i.e., both political and economic.  Political because of the looming elections (and certainly that is the main way that the WaPo piece is framed) and economic because the “Summer of Recovery”* didn’t go so well and certainly it is clear that the economy remains in trouble.

2)  Such a policy further demonstrates that the current administration is hardly as hard left as many critics like to suggest.  These certainly aren’t the kinds of things that a doctrinaire socialist would pursue, but fit the likely behavior patterns of a left of center moderate American Democrat.

3)  One does wonder, however, if temporary measures (like the above-mentioned payroll tax holiday) will be sufficient to spur hiring, as such a move does not improve long-term structural conditions that would influence hiring.  It might stimulate consumer spending but the questions become how much and for how long?  Further, such a holiday would have serious deficit implications, as those taxes are dedicated to specific spending programs (i.e., Social Security, Medicare, etc.) and the revenues not collected would have to come from somewhere.  I will note, for what it was worth, that I thought a payroll tax holiday might have been a good idea in the original stimulus (certainly as opposed to some other components thereof).

Anyway, this should make for an interesting debate in the Congress.


*Indeed, it turned out not unlike the Sumer of George.

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About Steven L. Taylor
Steven L. Taylor is Professor and Chair of Political Science at Troy University. His main areas of expertise include parties, elections, and the institutional design of democracies. He is the author of Voting Amid Violence: Electoral Democracy in Colombia and is currently working on a comparative study of the US to 29 other democracies. He earned his Ph.D. from the University of Texas and his BA from the University of California, Irvine. He has been blogging at PoliBlog since 2003. Follow Steven on Twitter

Comments

  1. john personna says:

    You are right in this paragraph, but totally wrong to lay it on “administration” rather than “Washington”:
     

    This comes across as desperation, and desperation of two types:  i.e., both political and economic.  Political because of the looming elections (and certainly that is the main way that the WaPo piece is framed) and economic because the “Summer of Recovery”* didn’t go so well and certainly it is clear that the economy remains in trouble.

    WTF man, you don’t think a year of Republican obstructionism had anything to do with putting us in this “desperation?”

    Of course callow Republicans will pretend that Obama drove the economy, without restraint, and without obstruction, to get us to this point … but we know that’s just stupid.
     

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  2. john personna says:

    BTW, when I read of this plan earlier this morning, my first reaction was boredom.  That, precisely because it is not an “administration” problem, it is a “Washington” problem.
     
    I have no faith that Washington will do anything brilliant at this point.

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  3. Brummagem Joe says:

    “1)  This comes across as desperation”

    Or how about responding changing economic circumstances? The recovery from the worst recession since the war is happening but it’s not happening fast enough in economic or political terms. What is the govt supposed to do, sit there and hope for the best? Krugman makes a fairly compelling case in this morning’s NYT that the stimulus just wasn’t big enough as he’s claimed all along. He also completely disproves the claims of Republicans that the stimulus presented any inflation threat or would cause the ”bond vigilantes” would drive up rates. The pump needs more priming, I’m guessing the admin has decided there isn’t much chance of much more demand stimulus and believes hiring incentives are more politically sellable on the hill. The problem is, it’s pushing on a piece of string to some extent. Demand is the problem.  

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  4. john personna says:

    Well, as political gamesmanship, we could say the administration is picking out a Republican plan (cutting taxes, on business, yet!) just to watch them contort themselves to oppose it now, before the election.
     
    The administration may understand that the politically possible isn’t likely to be terribly useful anyway.

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  5. Franklin says:

    Such a policy further demonstrates that the current administration is hardly as hard left as many critics like to suggest.

     
    Agreed 100%.  Besides the health care bill and the GM/Chrysler takeovers, nothing significant has been done during this administration that could be considered definitively liberal.  Foreign policy?  Same as before.  DADT and gay marriage?  Same as before.  Stimulus?  McCain’s advisers have said they would have had one.  Immigration policy?  Tougher than Bush’s.
     
    The only people saying this administration is hard left are the people would want to move the center to the hard right.

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  6. Steve Plunk says:

    I wonder how obstructionist Republicans could have done so much harm when the House, Senate, and Executive branch are all controlled by the Democrats.  What a hoot.  Dems fail so it has to be the Republicans fault.
     
    The desperation is the fact they are doing this not because the economy needs it but because they need the votes to retain power.  I’m afraid it’s too late for that.  The American people have now seen the true colors (red) of modern Democrats and want nothing to do with them.
     
    The payroll tax holiday would probably do little by itself to create jobs.  It takes more.  The one thing it would likely do is save jobs by saving thousands of small businesses from bankruptcy.  Through all of these difficult times local, state, and federal governments have continued to take their pound of flesh off the top.  Whatever shortfalls there were they just borrowed what they needed.
     
    Once again, the government should serve the people not the people should serve the government.  It’s all backwards and that’s why it’s failing.

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  7. Herb says:

    The desperation is the fact they are doing this not because the economy needs it but because they need the votes to retain power.

    Steve, I’ve often suspected that you’re more of a partisan Republican than any kind of principled small-government free-market conservative, and this seals it.

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  8. mantis says:

    I wonder how obstructionist Republicans could have done so much harm when the House, Senate, and Executive branch are all controlled by the Democrats.
    It’s called the filibuster, and a dedication to the strategy of oppose everything, all the time.  Hell, the Republicans in this congress would filibuster a flag-burning amendment.  They would filibuster a resolution recognizing puppies are nice.  They would filibuster a resolution condemning Ahmadinejad if Democrats supported it.  They would filibuster everything they say they support, as long as they were opposing Democrats and the White House doing so.
    Aid for small business?  Filibuster
    Aid for veterans?  Filibuster
    Unemployment extensions?  Filibuster
    Payroll tax holiday?  They will filibuster.  Just you watch.
    No principles, no desire to see economic conditions improve in this country, no shame.  Republicans know that their base hates the president and all Democrats with a burning passionate rage, so they appease them by opposing everything and are hoping dissatisfaction over the crappy economy will be enough for them to carry the middle.  They will probably succeed, and if they do regain control of Congress, it’s all going to get a whole lot worse.  Guaranteed.

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  9. reid says:

    Desperation, or just pulling another tool out of the economic toolbox?  Calling it desperation of any sort seems pretty cynical.
     
    mantis, thanks for explaining to Steve P. this thing called the “filibuster” and how it can be used to obstruct legislation.  (Start the countdown to tired, dumb argument about “filibuster-proof majority”….)

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  10. [...] thoughts from me @OTB:  White House Considers Tax Cuts for Business addthis_url = 'http%3A%2F%2Fwww.poliblogger.com%2F%3Fp%3D19356'; addthis_title = [...]

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  11. Max Lybbert says:

    I would expect the people who frequent this board to have a deeper understanding of current events than the average guy.  But, for the record, I would edit mantis’ list to be more like:

    Aid for small business (without offsetting the expense some way, according to PAYGO which Democrats made a big deal of passing)?  Filibuster
    Aid for veterans (without offsetting the expense some way, …)?  Filibuster
    Unemployment extensions (without offsetting the expense some way, http://hotair.com/archives/2010/07/20/beeler-the-party-of-no/ …)?  Filibuster

    As for the proposal President Obama’s floated — especially in conjunction with uncertainty about the Bush tax cuts — it’s hard to see if this will fix what’s wrong.  I don’t know if President Obama has an idea of what’s wrong, or what he’s trying to fix, but I believe the underlying problem is simply uncertainty in what the government will do in the immediate future and making decisions that smack of desperation only increases the uncertainty:

    The Great Depression of the thirties and the current Great Recession have one feature in common that has not, I think, received sufficient attention—the government response to them. Hoover reacted to the 1929 stock market crash by sharply increasing federal expenditure; by 1932 it was fifty percent higher than in 1929 in nominal terms, twice as high in real terms, three times as high measured as a share of national income. FDR went on to enormously expand the role of government in the economy, creating our modern regulatory state. Obama followed a similar policy on a smaller scale, expanding government involvement (already very large) in the health care and financial industries, bailing out failing firms on a scale I think unparalleled in U.S. history, threatening additional large scale interventions to deal with global warming.

    The result, in each case, was to greatly increase the uncertainty of the environment within which private actors were making their decisions. If you do not know what the future is going to be like, there is much to be said for postponing any decision that depends on the future, whether an investment in physical capital or human capital (David D. Friedman, http://daviddfriedman.blogspot.com/2010/09/living-dead-thoughts-on-macro-and.html ).

     

    My training is not in economics, but in business and management. Perhaps I am biased by my background, which includes 15 years of strategy and planning at large corporations and 10 years running my own business. But my framework for economic growth is a simple one: For growth to occur, someone has to make an investment (Warren Meyer, http://www.forbes.com/2010/07/29/macroeconomics-business-keynes-opinions-columnists-warren-meyer.html , c.f. http://www.forbes.com/2010/08/11/economy-business-health-care-opinions-columnists-warren-meyer.html ).

     

    [T]he key to the sudden reversal was the public’s acceptance of the idea that Roosevelt’s policies constituted a “regime change.” … his adoption of policies that his predecessors would have considered reckless provided a powerful signal to the public that the economic situation had fundamentally changed (Ben Bernanke, http://www.federalreserve.gov/pubs/feds/2004/200448/200448pap.pdf page 22 — the discussion is about monetary policy not economic policy; however the underlying point that people’s expectations of the future influnce the economy is a basic one).

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  12. Tano says:

    These certainly aren’t the kinds of things that a doctrinaire socialist would pursue, but fit the likely behavior patterns of a left of center moderate American Democrat.

     
    Well yeah….isn’t it pathetic though, that we need waste time making points like this?

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  13. anjin-san says:

    > I wonder how obstructionist Republicans could have done so much harm when the House, Senate, and Executive branch are all controlled by the Democrats.


    Did they teach civics at your high school?

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  14. MSS says:

    How often are business tax cuts a policy tool of “left of center” governments in the advanced industrial democracies?
     
     

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  15. john personna says:

    I wonder how obstructionist Republicans could have done so much harm when the House, Senate, and Executive branch are all controlled by the Democrats.  What a hoot.  Dems fail so it has to be the Republicans fault.

    So did you sleep through the stimulus debates?  They were actually pretty interesting.

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