Government Spending

Why Obama's Proposed Business Tax Breaks Won't Accomplish Anything

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Earlier today, I wrote about the very different circumstances between Bill Clinton's 1993 tax hike on high-income earners and Barack Obama's plan to boost rates on the same group today. The short version? The economy was growing when Clinton slapped a muffler on top earners (and producers) while Obama is trying to grab $70 billion in possible revenue out of a $3.6 trillion budget during a recession.

Over at National Review's The Corner, Reason columnist and Mercatus Center economist Veronique de Rugy weighs in Obama's proposed tax breaks for businesses. One of the reasons he want to ding folks making upwards of $250,000 is to pay for breaks that would let businessess

immediately deduct 100 percent of the cost of new investment in plants and equipment, when calculating their taxable income, rather than having to gradually deduct the cost via depreciation allowances. The direct consequence of the proposal is that companies would be able to keep more cash now.

Why is that a mistake? For a couple of reasons. As de Rugy notes

It's a "tax subsidy for debt-financed investment." Moreover, the government, once again, is playing with the tax code to encourage one form of behavior over another (spending/investing/borrowing over savings). I am not saying that savings is superior to investing or that any move from the current situation is a bad move. My point is just that the government shouldn't be in the business of picking winners and losers. Encouraging investments and discouraging savings through artificial and temporary tax breaks is wrong. It is because of the many decisions that were made by businesses and individuals based on targeted government policies that we are in this mess in the first place (think about the decision to buy a bigger house than you would have otherwise because of the interest tax deduction or low interest rates).

As important, the plan essentially gives a zero-interest loan to firms that use it. But since interest rates are already super-low, there's very little impetus to act differently than you would anyway. De Rugy concludes:

Instead of playing with the tax code, the administration should engage in serious tax reform and move to a consumption-based tax with a large base and a low rate.

Whole thing here.

NEXT: What's the Matter with Menthols?

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  1. Control is a compulsion with these people. They could never just lower tax rates and let people do what they want to with the money. No, they cannot resist trying to control what people do.

    1. Well, of course they want to control people. You don’t become the Most Powerful Man in the World so you can leave people alone.

      1. No one ever made history by respecting other people’s rights.

        I think that should be a bumper sticker.

      2. No. It should be

        “No one ever made history by respecting other people’s choices”.

    2. Typical Republican bullshit.

      1. So taxing income and business in its current form isn’t about control at all?

    3. i take it you’re against the long-term capital gains tax break too?

  2. I like this de Rugy person.

  3. How is this any different than the early Bush tax credit for buying big cars? That credit worked in the sense that every other house had an SUV and money was flowing.

    1. What Bush tax credit for buying big cars?

    2. What tax credit for buying big cars?

    3. It isn’t, and that’s why it’s a problem.

  4. the government shouldn’t be in the business of picking winners and losers

    FTFY

  5. It is because of the many decisions that were made by businesses and individuals based on targeted government policies that we are in this mess in the first place

    Good luck getting that through the impenetrable skulls of the Tonys of the world.

  6. And as for that R&D tax credit; expect to see a lot of expenses magically reclassified as research and development.

    1. That’s harder to do than you would think. It also means the expenses are expenses immediately which has draw backs as well since there is no capitalization of R&D.

      1. I used to do a lot of work with the R&D tax credit. As the R&D tax credit wasn’t mentioned in TFA, I’m not sure how it’s appropriate here. Moreover, when I did this sort of work, the largest pool of expenses by far were the qualifying wages of personnel performing R&D, not the capital expenses talked about in the article.

        hmm is right in that it’s not quite so easy to reclassify expenses as R&D qualifying. The test can be stringent and the Service was starting to take a very hard line towards allowing R&D qualifying expenses.

        That said, I totally agree with the idea of scrapping the social engineering tax credits and targeted deductions, along with a broad cut in tax rates.

        1. In order to scrap deductions, exceptions, credits, and the myriad of other tricks in the tax code would mean rewriting the code. Without the above the code would collapse, which is a testament to how completely fucked up and lacking in any theory or or theme (aside from get money) our tax code is.

  7. the administration should engage in serious tax reform and move to a consumption-based tax with a large base and a low rate

    Say, a 1.5% tax on menthol cigarettes MJ?

  8. How is this any different than the early Bush tax credit for buying big cars?

    That was a stupid idea, too.

    Feel better?

    1. I didn’t know there was such a thing. What is he talking about?

    2. And the spam filter is infuriating. I cannot post “What B*** tax credit for buying b&& car!” without it being filtered.

    3. 179 deduction

      Sport Utility and Certain Other Vehicles

      You cannot elect to expense more than $25,000 of the cost of any heavy sport utility vehicle (SUV) and certain other vehicles placed in service during the tax year. This rule applies to any 4-wheeled vehicle primarily designed or used to carry passengers over public streets, roads, or highways, that is rated at more than 6,000 pounds gross vehicle weight and not more than 14,000 pounds gross vehicle weight. However, the $25,000 limit does not apply to any vehicle:

      *Designed to seat more than nine passengers behind the driver’s seat,
      *Equipped with a cargo area (either open or enclosed by a cap) of at least six feet in interior length that is not readily accessible from the passenger compartment, or
      *That has an integral enclosure fully enclosing the driver compartment and load carrying device, does not have seating rearward of the driver’s seat, and has no body section protruding more than 30 inches ahead of the leading edge of the windshield.

  9. Drastically cut spending, pass most of the savings back to us through massive tax cuts, take some of the savings to pay down debt.

    Economy saved!

    1. Do a five to one trade. For every dollar in tax cuts cut five dollars in spending. Tax cuts are good, but spending cuts are even better.

      1. Cuts! More cuts! Cut with great cutlery! Cuttle fish!

      2. I love how the Administration is “taking it to” Minority Leader Boehner for suggesting we go back to 2008 levels of spending.

        Like we weren’t overspending already during the Bush years…I say take it back at least to 2000 or better yet 1900 (in real dollars not inflation adjusted)…those would be real spending cuts.

        (Honestly I would just be pleased if they just froze spending for a few years. At least it would be a step in the right direction.)

  10. Drastically cut spending, pass most of the savings back to us through massive tax cuts, take some of the savings to pay down debt.

    *Chico Marx voice*

    “Aaahhh, you crazy!”

  11. It also means the expenses are expenses immediately which has draw backs as well since there is no capitalization of R&D.

    Consequences, schmonsequences!

  12. You always double down on 11 baby!

  13. TO THE WEAK-KNEED REPUBLICANS AND DEMOCRAT?..Wake up america!!!! This goverment is the most corrupt we have had in years. The good old boy network is very much in charge.Mr. obama and pelosi are the puppet masters.How many of their good friends benefited by the agreement ” what a farce. All of the u.sSenators voted for this. I am ashamed to say I voted for the these corupted self serving politicians.With good reason they picked an out of towner to be president.All u.s departments need an overhaul. We need to rid ourselves of the puppet masters and the dept heads that bow down to obama and pelosi.I am sick of the lip service I have been getting from these dummies over violations, their friends are getting away with.in the goverment . Barack Hussein Obama , threatens friends and bows to Mmslim.
    INPEACH OBAMA ,GOD OPEN YOUR EYES.///For us there are only two possiblities: either we remain american or we come under the thumb of the communist Mmslim Barack Hussein OBAMA. This latter must not occur.THE COMMANDER

  14. TO THE WEAK-KNEED REPUBLICANS AND DEMOCRAT?..TO ALL THE COMMUNIST IN THE IG,FBI,CIA,AND U.S. Senators and the left wing media outlets////////07 Sept. 2008 11:48:04 EST, Televised “Meet the Press” THEN Senator //Mmslim Barack Hussein Obama, was asked about his stance on the
    American Flag.

    General Bill Ginn USAF (ret.) asked //Mmslim Barack Hussein Obama, to explain WHY he doesn’t follow protocol when the National Anthem is played. The General stated to Obama that according to the United States Code, Title 36, Chapter 10, Sec. 171 “?During rendition of the national anthem, when the flag is displayed, all present (except those in uniform) are expected to stand at attention facing the flag with the right hand over the heart. Or, at the very least, ‘Stand and Face It’.”

    NOW GET THIS!! ? – ? – –
    ‘Senator’ //Mmslim Barack Hussein Obama, replied:

    “As I’ve said about the flag pin, I don’t want to be perceived as taking sides”.
    “There are a lot of people in the world to whom the American flag is a symbol of oppression..”
    “The anthem itself conveys a war-like message. You know, the bombs bursting in air and all that sort of thing.”

    (ARE YOU READY FOR THIS???)

    //Mmslim Barack Hussein Obama, continued: “The National Anthem should be ‘swapped’ for something less parochial and less bellicose. I like the song ‘I’d Like To Teach the World To Sing’. If that were our anthem, then, I might salute it. In my opinion, we should consider reinventing our National Anthem as well as ‘redesign’ our Flag to better offer our enemies hope and love. It’s my intention, if elected, to disarm America to the level of acceptance to our Middle East Brethren. If we, as a Nation of warring people, conduct ourselves like the nations of Islam, where peace prevails ? – ? perhaps a state or period of mutual accord could exist between our governments.”

    “When I become President, I will seek a pact of agreement to end hostilities between those who have been at war or in a state of enmity, and a freedom from disquieting oppressive thoughts. We as a Nation, have placed upon the nations of Islam, an unfair injustice which is WHY my wife disrespects the Flag and she and I have attended several flag burning ceremonies in the past”.

    “Of course now, I have found myself about to become the President of the United States and I have put my hatred aside. I will use my power to bring CHANGE to this Nation, and offer the people a new path? My wife and I look forward to becoming our Country’s First black Family. Indeed, CHANGE is about to overwhelm the United States of America “INPEACH OBAMA THE COMMUNIST ,GOD OPEN YOUR EYES.//////For us there are only two possiblities: either we remain american or we come under the thumb of the communist Mmslim Barack Hussein OBAMA. This latter must not occur.the commander
    REPOST THIS IF YOU AGREE

  15. OBAMA goes about his business by speaking the lie. II Thessalonians 2 says that he comes “with all deceivableness of unrighteousness.” Revelation 13:12 says, “and he spoke as a dragon?.” Revelation 17 tells us that he was a false prophet, a prophet being one whose calling it is to speak and to teach. The armies of the world may have guns and tanks and bombs to bring people into submission; but the power of speech and ideas is a mighty power. In his initial attempts to destroy the cause of God, OBAMA used a serpent to deceive the woman with crooked speech: “You will be like God.” Now he uses a “dragon” who speaks crafty, lying words. His speeches will be heard by millions who will hang on his persuasive rhetoric. The content as well as the form of his speech will attract. Like most false prophets, he will even be sincere and passionate. But he is a liar. He adds dashes of truth to the mix, so that his lie tastes like truth. He will use all the right catchwords, using the language of the church, even throwing in a Bible text or two. But he is the ultimate Liar, and will deceive many.
    OBAMA will use every tool available: school teachers, politicians, news broadcasters, artists, musicians, scientists and doctors, lawyers and businessmen. All will be pressed into the service of OBAMA to deceive men. But especially he will use those whose calling it is to persuade and to teach ?quot; men who claim to be preachers of the gospel of Jesus Christ.
    THE COMMANDER,,, REPOST THIS IF YOU AGREE .. THE END OF AMERICA

  16. Okee-Dokee. That was special.

    1. I love the COMMANDER. This is not his first Hit & Run comment, either.

    2. Best troll ever.

  17. I like the quote on the T-shirt, but it deserves an attribution.

    “A recession is when your neighbor loses his job. A depression is when you lose your job. A recovery is when Jimmy Carter loses his job” Ronald Reagan.

    1. Meanwhile, A nocturnal emission is when Obama loses his job.

  18. The idiots who think that the government can and should run the economy can’t grasp the simple fact that no one answer works for everybody. Investing in new equipment is undoubtedly a good idea for some, but others shouldn’t do it. And the government has no rational way of deciding who should do it and who should not. So they should just stay out of it rather than using the tax code to try to push their social engineering schemes. Too simple I suppose, and God forbid that people make these decisions on their own rather than kowtowing to The Great One.

  19. Tax consumption! No fucking way. That’s not going to soak the rich. Rich people don’t spend money. Poor people spend money, and wisely.

    There is no fucking way anything is ever going to change in this country until we have tax reform: fair tax, flat tax, just some fucking simplified form of taxation. It doesn’t matter what issue or policy you talk about, until this happens – the dreaded status quo.

    Elect officials that are committed to some form of a consumption tax, kill all other taxes, and cut spending. Economy fixed.

    Uncertainty is killing the economy as much as anything. I deal with investors daily. “I’m afraid to do anything right now” is what I hear over and over. A radically simplified tax code is possibly the only thing that will bring the type of investment (not fucking consumer spending) that the economy needs.

    1. And … the Commander 2012. Praise Jaysus!

    2. A radically simplified tax code is possibly the only thing that will bring the type of investment (not fucking consumer spending) that the economy needs.

      Worked for me. It wasn’t so much tax cuts because as you well know I raised taxes a couple of years later, it was the simplifying of tax code that did the trick. H.W. Bush unwisely complicated those tax codes and Bill Clinton won with “its the economy stupid”. DOH!

  20. no one answer works for everybody.

    !?!?!?!?!?!?!?!?!?!?!?!?!?!?!?!?!?!?!?!!?!??

  21. I did not read DeRugy’s piece so perhaps she covers this but:

    “It’s a “tax subsidy for debt-financed investment.””

    “The direct consequence of the proposal is that companies would be able to keep more cash now.”

    If the company has cash, which apparently many do, and decides to buy the investment out right then these statements do not apply. Section 179 expensing is an extremely useful tool for tightly held companies.

    None of which means I disagree with the comments that the government should get out of the business of picking winnners and losers.

  22. “…move to a consumption-based tax with a large base and a low rate.”
    Don’t worry, they’ll do that also.

  23. Obama and his Chicago boys are still guffawing over how all the chumps in the media reported that one with a straight face. Hey, it’s a just another reason why running a gangster government is nothing but laughs for the Obama crew in the White House.
    TO ALL THE COMMUNIST IN THE IG,FBI,CIA,AND U.S. Senators and the left wing media outlets ////Mmslim Barack Hussein Obama people have no idea of the extent to which they have to be gulled in order to be led.” “The size of the lie is a definite factor in causing it to be believed, for the vast masses of the nation are in the depths of their hearts more easily deceived than they are consciously and intentionally bad. The primitive simplicity of their minds renders them a more easy prey to a big lie than a small one, for they themselves often tell little lies but would be ashamed to tell a big one.” “All propaganda must be so popular and on such an intellectual level, that even the most stupid of those towards whom it is directed will understand it. Therefore, the intellectual level of the propaganda must be lower the larger the number of people who are to be influenced by it.” “Through clever and constant application of propaganda, people can be made to see paradise as hell, and also the other way around, to consider the most wretched sort of life as paradise. //////”pelosi don’t see much future for the Americans … it’s a decayed country. And they have their racial problem, and the problem of social hate …obama feelings against Americanism are feelings of hatred and deep repugnance … everything about the behaviour of American society reveals that it’s half LIES, and the other half RACIAL. How can one expect THE USA to hold TOGTHER.They include the angry left wing bloggers who spread vicious lies and half-truths about their political adversaries… Those lies are then repeated by the duplicitous left wing media outlets who “discuss” the nonsense on air as if it has merit? The media’s justification is apparently “because it’s out there”, truth be damned., GOD OPEN YOUR EYES, Barack Hussein Obama , threatens friends and bows to enemies INPEACH OBAMA THE COMMUNIST ,GOD OPEN YOUR EYES.///For us there are only two possiblities: either we remain american or we come under the thumb of the communist Mmslim Barack Hussein OBAMA. This latter must not occur.TO THE WEAK-KNEED REPUBLICANS AND DEMOCRAT .THE COMMANDER REPOST THIS IF YOU AGREE

  24. “INPEACH OBAMA THE COMMUNIST ,GOD OPEN YOUR EYES.//////For us there are only two possiblities: either we remain american or we come under the thumb of the communist Mmslim Barack Hussein OBAMA. This latter must not occur.the commander
    REPOST THIS IF YOU AGREE

  25. THE IRON HEEL OF OBAMA

    IN THE PAST FEW DAYS, OBAMA HAS LASHED OUT AGAINST CONSERVATIVES IN A WAY THAT SHOWS THEY ARE ABOUT TO CRACK DOWN ON ALL DISSENT IN THIS COUNTRY. LAST WEEK, BILL CLINTON CLAIMED SAID THAT THOSE ON THE RIGHT SHOULD TONE DOWN THEIR RHETORIC. A HACK WRITER NAMED JOE KLEIN GOT ON NBC AND SAID THAT REMARKS THAT HAVE BEEN MADE BY SARAH PALIN AND OTHER CONSERVATIVE COMMENTATORS CONSTITUTE SEDITION.

    OBAMA HAS BEEN GETTING BOLDER AND BOLDER. FIRST THEY PUT FORWARD THE IDEA OF REVIVING THE UNFAIRNESS DOCTRINE, WHICH WOULD DESTROY CONSERVATIVE TALK RADIO. THEN THEY CLAIMED THAT TOO MUCH “HATE” WAS COMING FROM THE TEA PARTIES AND THE RIGHT. AND NOW THEY’RE PUTTING IT IN TERMS OF ACTUAL SEDITION. THEY ARE TRYING TO ESTABLISH A LEGAL BASIS FOR SHUTTING UP THOSE THAT THEY DISAGREE WITH.

    THE IRON HEEL OF OBAMA IS COMING DOWN QUICKLY. IT IS ONLY A MATTER OF TIME BEFORE OBAMA USES SOME EXTRA-CONSTITUTIONAL MEANS OF SILENCING HIS OPPONENTS. IT MAY COME AS AN EXECUTIVE ORDER. IT MAY COME AS A BILL FORCED THROUGH THE CONGRESS BY RECONCILIATION. OR IT MAY BE SOMETHING ELSE. BUT BE ASSURED THAT IT WILL COME. AND WHEN IT DOES, DON’T COUNT ON THE WEAK-KNEED REPUBLICANS AND DEMOCRAT IN CONGRESS TO PROTECT YOU. THEY SEE WHICH WAY THE WIND IS BLOWING, AND THEY’RE GOING ALONG TO GET ALONG. ONLY ACTION BY THE PEOPLE THEMSELVES CAN STOP THIS NOW. MAYBE THE TEA PARTIERS, MAYBE SOMEONE ELSE. BUT IF ACTION IS NOT TAKEN SOON, THE IRON HEEL OF THE OBAMA WILL HAVE CRUSHED FREE SPEECH IN AMERICA.
    “INPEACH OBAMA THE COMMUNIST ,GOD OPEN YOUR EYES.//////For us there are only two possiblities: either we remain american or we come under the thumb of the communist Mmslim Barack Hussein OBAMA. This latter must not occur.the commander
    REPOST THIS IF YOU AGREE

  26. Lets face it, people are already tired of hoping for the better. the American government does not have the political will to be honest with the American people about our financial condition. The politicians will most likely take the easy way out by printing us into hyper-inflation rather than admit their folly and take the responsible action of implementing Greek-style austerity. Either way, it’s not going to be pretty.
    We help Americans move to Asia for jobs and prosperity. Learn more at http://www.pathtoasia.com

  27. I think the point of this tax break is that it’s generally worthless to most businesses, so it makes a good sound bite but reduces the government’s tax take very little. Most businesses aren’t going to make heavy capital investments just because of this tax break, and most small businesses have no need of such investments in the first place.

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