Obama's tax plan for business: Will companies start spending?
The White House is rolling out a plan that's the strongest attempt yet to jump-start the economy through policies aimed at business.
Under the plan, businesses would write off 100 percent of their new investment expenses through 2011. Businesses now deduct these expenses over years.The Obama administration would let them deduct immediately.
The puzzle that no one has been able to solve yet is how to get companies to spend, rather than hoard their cash. Would this plan do it?
As Harvard economics professor Greg Mankiw points out, the deduction idea is like "giving firms a zero-interest loan if they invest in equipment." But, he adds, because interest rates are already near zero, the value of the tax change isn't much better than what firms can already get.
A story from Bloomberg last week explained that companies are borrowing at extremely low rates.
Johnson & Johnson sold $1.1 billion of bonds at the lowest interest rates on record for 10- and 30-year corporate securities on Aug. 12, according to Citigroup Inc. data going back to 1981. The New Brunswick, N.J.-based drugmaker issued $550 million of 2.95 percent notes due 2020 and the same amount of 4.5 percent bonds maturing 2040, data compiled by Bloomberg show.
International Business Machines Corp., the world's biggest computer-services company, raised $1.5 billion in the bond market on Aug. 2. The 1 percent rate for the three-year notes paid by the Armonk, N.Y.-based company was the lowest of the more than 3,400 securities in the Barclays Capital U.S. Corporate Index of investment-grade company debt.
The other looming question here is how the administration hopes to pay for this deduction, along with a permanent extension of the research and development tax credit. It could come from the pockets of business, based on this nugget from The Post's story Monday by my colleagues Anne Kornblut and Lori Montgomery, who write: "It would be paid for by closing other corporate tax loopholes, said the official, speaking on condition of anonymity because the policy has not yet been unveiled."
I'm trying to read political code here, but the piece of corporate tax policy most frequently described as containing "loopholes" is the convoluted section that deals with taxing multinational companies -- the giants of corporate America, such as GE, Intel, Microsoft and IBM. The White House earlier proposed closing off ways that companies claim foreign tax credits, and they might trot out those proposals again.
If they do, they could set up more internecine battles within the business community over whether to support the plan. On one side, companies such as Intel are already on the record supporting r&d tax credits. On the other, IBM flatly opposes limiting foreign tax credits, given how much of its operations are overseas.
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