Obama's New Business Tax Break Is A Gigantic Version Of Cash-For-Clunkers


Photo: Consumer Metrics Institute

Last night it emerged that Obama will announce on Wednesday a $200 billion tax break for businesses — specifically, they will be allowed to write off 100% of new property and plant investments through 2011.We wondered if it would do any good, considering the lack of demand in the economy.

After all, even if you have a tax credit, it doesn’t make sense to invest more if that new equipment can’t be backed up by sales.

But as a reader points out, it does make sense to invest in new equipment if your current equipment is very old, and you were going to have to do this anyway.

Sound familiar? It’s cash-for-clunkers-o-nomics.

Cash-for-clunkers simply pulled demand forward, by getting people who had ageing cars, who were about to buy a new one, to speed up their purchases. Predictably, sales tanked once the program was over.

And that’s what we’ll get here. Businesses that are a few years away from requiring new equipment will speed up their purchases by a few years, taking advantage of the tax credit.

And then the demand will collapse after 2011, when the credit expires.

The only difference. While clunkers was just a $3 billion program, this is a $200 billion program, more than 66x bigger.

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