With his trouble presidency imperiled by the likelihood Democrats will lose the House and possibly the Senate, President Obama is calling for business tax cuts in a desperate move to blunt the Republicans’ fierce campaign offensive on the weakening economy.
Obama outlined two new tax breaks for businesses Wednesday that called for a permanent extension of the expired research and development tax credit and to let companies write off 100% of purchases of new equipment and investments in plant expansion this year and next.
In Cleveland, Obama reiterated in a blistering political attack on Republicans and said that he intends to let the 2001 and 2003 tax cuts enacted under President George W. Bush for upper-income taxpayers, small businesses and investors expire at the end of the year.
That position drew criticism from his recently departed budget director, Peter Orszag. In a New York Times op-ed column Monday, Orszag warned that raising income taxes now, in the midst of a weak economy, would worsen the job market and hurt consumer spending needed to keep the recovery going.
“No one wants to make an already stagnating jobs market worse over the next year or two, which is exactly what would happen if the cuts expire as planned,” Orszag wrote. Instead, he urged that the two top tax cuts for people and small businesses earning over $250,000 a year be retained for two years more to give the economy a chance to recover.
Virtually the entire business community, Republicans in Congress and a growing number of vulnerable Democrat lawmakers are opposed to letting the two highest tax rates revert back to levels under the Clinton Administration when the highest tax rate was nearly 40%.
Many economists questioned the effectiveness of the President’s proposed tax credits and top business groups cautioned the devil is in the details—voicing doubts about his hastily taped-together plan just seven weeks before the Nov. 2 midterm elections as polls showed the Democrats will suffer devastating losses in Congress.
Administration officials said the targeted R&D tax credits would be aimed at companies that develop new technologies here in the U.S. that preserve existing jobs. The $100 billion costs would be paid for by closing so-called tax loopholes and thus shifting the costs to other industries and businesses.
That has raised red flags among business groups who fear that the White House plan will target other business sectors for much higher taxes.
“The U.S. Chamber will support any proposal that spurs job creation, bolsters both short- and long-term economic growth. We will not support an approach where the government picks winners and losers—providing tax credits and incentives to politically favored industries and groups while sticking others with the bill,” Bruce Josten, the chamber’s chief lobbyist, said in a statement.
But the 11th hour plan, which includes an additional $50 billion in public works and infrastructure spending, had political desperation written all over it, as polls showed a majority of Americans no longer support Obama’s handling of the economy and believe that much if not most of his original $800 billion stimulus plan was wasted and did little or nothing to create new jobs.
“This President and administration have had nearly two years to help turn around our economic situation. Their agenda of more taxes, regulations, and mandates clearly isn’t working. In fact, it has created uncertainty and delayed and weakened the recovery,” Josten said.
Even the usually compliant national news media no longer tried to hide the political panic that is behind the White House’s latest tax cut proposals.
“Administration officials have struggled to develop new economic policies and an effective message to blunt expected Republican gains in Congress and defuse complaints from Democrats that President Obama is fumbling the issue most important to voters,” the Washington Post reported in a front-page article Friday.
But veteran Democrat policy strategists were under no illusions that Obama’s latest plan, if passed by Congress, would have any impact on the economy in time to save dozens of House and Senate Democrats from defeat.
“Substantively, there is nothing they could do between now and Election Day that would have any measurable effect on the economy. Nothing,” Bill Galston, President Clinton’s chief domestic policy adviser, told the Washington Post.
Many economists say that tax credits produce little if any sustainable, long-term growth and even some of Obama’s own economic advisers said the R&D tax credit would not have any immediate impact on job creation.
“I don’t think this is something that has an immediate … job impact,” economist Laura Tyson, a member of Obama’s economic recovery board, said on CBS’ “Face the Nation.”
“The history of investment and employment tax credits is those only have modest immediate affects; then several months later, enterprises spend less—much like the recent experience with cash for clunkers and auto sales, and tax credits for first time homebuyers,” said University of Maryland economist Peter Morici.