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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.

By Jia Lynn Yang  |  September 7, 2010; 11:50 AM ET
Categories:  Corporate taxes  
Save & Share:  Send E-mail   Facebook   Twitter   Digg   Yahoo Buzz   StumbleUpon   Technorati   Google Buzz   Previous: Is the corporate tax rate too high?
Next: What happened to the bank tax?


Obama reminds me of the line the late Ann Richards used to use:


Obama has sorely disappointed from his actions on:
*Health care
*Cash for Clunkers
*Wall street bailout
*Auto bail out
*….EVEN the Olympic Bid!
*Economy in general and jobs in particular
*Developing an Afghan policy and having to go to West Point to announce it
*Christmas Day bomber (if we recall, it took him days to respond)
*Failure to secure US borders
*TImes Square bomber
*Apology tours (This will be NUMBER TWO FOR CHINA! They must really think they are dealing with a WIMP NOW!!)
*Lack of effective action in the Gulf Spill, and failure to listen to the governors involved – Obama just seems to DITHER!
* And how about that uncontrolled deficit GANG?? Obama appears to be totally void of any management skills!
*The dysfunctional Country Team in Afghanistan, resulting in the relief of Gen McChrystal
One simply cannot play golf; take three vacations in three months; shoot hoops; have parties as the present incumbent of the White House seems enjoy, while the nation is in a deep recession; prosecuting two wars; and has a major disaster in the Gulf of Mexico, and on our borders. Just signs of POOR LEADERSHIP ON THE PART OF OBAMA!! Regardless of what he believes, HE IS NOT, REPEAT NOT OMNIPOTENT!!
His solution to EVERYTHING is: TAX & SPEND; TAX & SPEND; AND THEN, TAX & SPEND! If it fails, he BLAMES IN ON BUSH – OR SOMEONE ELSE!! He needs to add “CUT” to his vocabulary!
Folks at the G8 and G20 have a much clearer perception of what President Obama has done – AND HAS NOT DONE – than the people of the USA. It is not a pretty picture! Obama has lost his ‘luster’ with the majority of his counterparts.
Well, at least Rahm Emanuel is happy. He has a LOT of CRISISES that he can now manipulate!

Posted by: wheeljc | September 7, 2010 4:56 PM | Report abuse

Taxes have almost no influence on business decisions; it is one of many factors that govern investment.
Nobody ever stopped trying to make money because of taxes... not once... not ever.
Find a way to stimulate demand, which leads to sales, and you will stimulate economic growth.

Posted by: OldUncleTom | September 7, 2010 6:55 PM | Report abuse

Obama Added More to National Debt in First 19 Months Than All Presidents from Washington Through Reagan Combined, Says Gov’t Data

In the first 19 months of the Obama administration, the federal debt held by the public increased by $2.5260 trillion, which is more than the cumulative total of the national debt held by the public that was amassed by all U.S. presidents from George Washington through Ronald Reagan

Posted by: fury60 | September 9, 2010 5:29 AM | Report abuse

Obama has really no clue as to how businesses are run. He thinks that is a very down econ they will be buying up lots of new equip before demand picks up? I knew Obama had ZERO business & exec experience but, I didn't realize that he has an IQ approaching zero..

Posted by: illogicbuster | September 9, 2010 12:44 PM | Report abuse

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