Contrary to some fears, it doesn’t sound like Barack Obama is rushing to roll back the Bush tax cuts. This morning on Meet The Press, Senate Majority leader Harry Reid said there’d been no discussion of any tax increase (or tax cut rollbacks) and now WSJ says Obama’s tax cut plans will be bigger than had originally anticipated:
The largest piece of the overall tax relief would involve cuts for people who pay income taxes or who claim the earned-income credit. It would serve as a down payment on the “Making Work Pay” proposal Mr. Obama outlined during his election campaign, providing a credit to offset Social Security and Medicare payroll taxes of $500 per individual or $1,000 per family.
On the campaign trail, Mr. Obama said he would phase out a similar tax-credit proposal at around $200,000 per household, but aides said they haven’t settled on an income cap for the latest proposal. This part of the plan is similar to a bipartisan initiative launched in early 2008, which sent out checks worth $131 billion.
As for the business tax package, a key provision would allow companies to write off huge losses incurred last year, as well as any losses from 2009, to retroactively reduce tax bills dating back five years. In effect, this would entitle companies to receive cash from the government that they otherwise couldn’t have claimed.
A second provision would entice firms to plow that money back into new investment. The investment write-offs would be retroactive to expenditures made as of Jan. 1, 2009, to ensure that companies don’t sit on their money until after Congress passes the measure.
Suddenly, concepts like the wealthy and businesses “paying their fair share”, which played well on the campaign don’t sound so good when business investment is contracting rapidly, and it’s your job to manage things. That being said, a lot of this doesn’t sound like tax cuts, so much as the government writing checks to businesses (the loss-making ones) and individuals (such as people who who claim the EITC, who already pay no taxes). As for the investment tax credit, that could be interesting depending on details (such as how long this would remain in effect — how about forever?). Note we anticipated the issue of companies sitting on their cash until the law kicked in, so we’re glad to see indication now that it will be applied retroactively to Jan 1.
This approach isn’t too surprising considering the economists with whom Obama’s surrounded himself. Of course he’s going to spend, spend and spend more. But, he’s got folks like Christina Romer, who’s argued that tax cuts produce a greater multiplier effect than government spending — particularly when it impacts business investment. There’s going to be an everything-against-the-wall effort by this administration, so that will include spending and tax cuts and extended benefits to the unemployed.
Of course, the question remains: how/when are we going to pay for it all? Many believe that eventually we’ll have to run the presses. And there’s the fact that some of what’s going on isn’t merely recessionary. The busting of Wall Street, housing, the Detroit auto model and the changing media industry (to name a few things) will be painful and recessionary, but won’t be turned back with a little urging. Perhaps, however, the hope is just that the blow can softened.