08.31.2010 0

Obama even gets tax cuts wrong

  • On: 09/07/2010 19:35:03
  • In: Taxes
  • By Rick Manning

    How could someone seemingly get everything they touch wrong? You would think proposing tax cuts would be safe territory for our incumbent president, until you examine his actual proposed cuts.

    President Obama is expected to announce a $200 billion two year tax cut for business to encourage them to move up their capital expenditures and stimulate the economy through their purchases — essentially applying the “cash for clunkers” car sales economic model to capital spending by business.

    Some would ask what is wrong with a business tax cut that purports to stimulate the economy? It sounds almost Republican.

    The answer is at least three fold.

    1. This tax cut just like the grants and spending from the stimulus package, attempts to pick winners and losers favoring businesses with heavy capital expenditure outlays like the U.S. government-owned General Motors, or the UAW-owned Chrysler Corporation, over service-oriented businesses who will derive little if any benefit.
    2. The two year nature of the tax cut will naturally push capital spending, which might occur in 2013 or beyond into 2011 and 2012, leaving a capital expenditure void in 2013, harming the economy over the long haul. We saw this exact effect with the cash for clunkers program, and more recently with the mortgage incentive program. When they ended, both car and home sales went off a cliff. Of course, the fact that the President faces reelection in 2012 and someone else is likely have to deal with the mess in 2013 has nothing to do with the length of the proposed cuts.
    3. It effectively penalizes other businesses in their quest for capital as they are forced to pay what is likely to become the highest corporate tax rate in the industrialized world. (Japan is currently in the process of lowering their corporate tax rate which would leave the U.S. with the highest rate.)

    If this Administration wants to get the economy going, the answer is not directed tax cuts on expenses or research and development tax credits, but instead a lowered across the board tax rate, and maintaining the lower capital gains tax rates put in place under President Bush’s watch.

    Instead, the Obama Administration cannot help their basic instinct to attempt to engage in top-down, command-and-control economic policy. For whatever reason, this Administration does not seem to comprehend Adam Smith’s invisible hand, which describes how the profit motive causes a series of decisions throughout the economy that results in natural winners and losers based upon the merit of their ideas, the value of their products and their drive to succeed.

    Free enterprise works, but gaming the system in favor of some companies over others ultimately creates failure as the favored businesses become dependent upon taxpayer largesse rather than developing products that can compete and win in the marketplace.

    Contrast this with a permanent lowering of the corporate tax rate, which would allow all private sector job creators to keep more money for expansion, research and development and selling their products at a more competitive rate both in America and abroad.

    The audacity of government leveling the playing field and creating conditions where all American companies can compete equally rather than one created by Gucci-shoed lobbyists battling for tax carve outs and appropriation earmarks. Of course, the more level the playing field, the less dependent our nation is on government “doing something” and that may not sit well with an Administration that honestly seems to believe that they are the masters of the universe.

    Ultimately, this power hungry drive to control the economy and attempt to defy Adam Smith’s economic laws, show that even when announcing support for cutting taxes, Obama just doesn’t get it.

    Rick Manning is the Director of Communications for Americans for Limited Government.


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