Barack Obama is pushing his tax cut plan today in Cleveland. His speech is not expected to have any new components; he merely picked the Ohio city to highlight his duel with Republican leader John Boehner. Although he’s selling his newfound support for tax cuts in an effort to take the issue away from Republicans, his economic program gives with one hand and takes back with the combined grasping power of the entire IRS. He hopes his tax cuts will allow small businesses to add enough jobs to bail him out of his impending Double Dip recession, so he can get back to portraying them as the enemies of the State.
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The newborn tax-cutter claims he is pro-business, floating new tax cuts allowing firms to write off 100 percent of new equipment investments for just over a year, from this week until the end of 2011. News reports vary, but Obama claims this will total $200 billion over ten years. Given his projections for the cost of ObamaCare, one should take this with a generous grain of salt.
Businesses have long sought the tax incentives Obama now disingenuously advances. But the way he has proposed them will do nothing to advance the health of the economy for several reasons. Few firms will invest in new ventures when they are not selling their current products. The proposal, like his commitment to staving genocide away from Iraq, is also time-limited. After the tax deducation expires in 2012, business will not know what to expect, and uncertainty is a greater barrier to investment than virtually any other.
Economists Left and Right oppose the plan. Mark Zandi of Moody’s Analytics said, “The tax breaks won’t be a game-changer.” The chief economist of the National Federation of Independent Business explained one reason why this is: “If you give a small-business guy $20,000, he’ll say, ‘I could buy a new delivery truck but I have nobody to deliver to.’ “
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Politically, it combines the worst of all worlds: ineffective and temporary tax cuts coupled with new deficit spending to help his union buddies. Not surprisingly, neither side of the aisle is happy. Columnist A.B. Stoddard of The Hill wrote Obama’s plan is so disastrous it “sounds like a Republican campaign ad.” Republicans have pronounced it DOA. His fellow Democrats are running in horror. The New York Post reported that Robert Gibbs, grasping for straws, “ultimately acknowledged that officials at least hope it will spur job growth as early as next spring.”
There is an enormous reason to believe none of these benefits will materialize. Obama has vowed he will let the “Bush tax cuts” expire for those making more than $250,00 a year, drastically raising taxes on small business owners who file individual tax forms. On January 1, 2011, their tax rate will increase to almost 40 percent — nearly matching Obama’s approval ratings. Rep. John Carter, R-TX, struck a memorable metaphor: “Offering $200 billion in narrowly targeted business tax cuts and new deficit spending while yoking taxpayers with a $3.8 trillion January tax hike is like a carjacker offering taxi fare before he rides off in your car.”
Even Obama’s former director of the Office of Management and Budget, Peter Orszag, has written the president should extend all the Bush tax cuts for at least two more years. “[N]o one wants to make an already stagnating jobs market worse over the next year or two,” he said, “which is exactly what would happen if the cuts expire as planned.”
This is common sense. Entrepreneurs are more interested in profits than term-limited deductions. Penalizing success will assure fewer innovative thinkers pursue it.
At best, Obama’s “targeted tax cuts” will mirror his failed “Cash for Clunkers” program. It will pull forward some investment businesses were going to make anyway, but economists say most will not respond to the program until late in 2011. Then the write-offs disappear, and business investment will dry up again.
As I wrote last month, “Rest assured, run-of-the-mill liberals will look at the damage their policies have created and suggest it can be fixed by an even bigger ‘stimulus.'”As if on cue, Obama unveiled a $50 billion wealth transfer from hardworking Americans to his Big Labor cronies. The tax cuts are a political ploy he thinks will shame Republicans into supporting the union kickback or bail out vulnerable Democrats in swing districts.
In reality, his policies are empty rhetoric fashioned into a political weapon, devoid of substance or meaning, and, should they ever be enacted, would have little discernible positive impact.
Obama is fiddling while the economy goes up in flames. But he manages to get in a dig at John Boehner in his home state. To the thug-in-chief, that appears to constitute an even trade-off.