Tax Analysts Blog

Obama Proposes Massive Business Tax Cuts

Posted on Sep 7, 2010

Reports are just coming in (here and here) that Obama will propose that businesses be allowed to write-off the entire cost of investment in plant and equipment in the year it is placed into service. The provision will be in effect from the date of announcement until the end of 2011. Also being proposed is a permanent extension of a simplified and expanded research tax credit.

The first-year write off of plant and equipment-- known as "expensing"--has long been a dream of the business community. But it will probably win Obama little support because of its temporary nature. No doubt the Obama economic team chose temporary expensing over other alternatives--like a much needed corporate tax rate cut--because the official revenue cost over ten years will score as small relative to the benefit it provides. (That's because up-front revenue losses are offset by revenue gains in the out years. The benefit is primarily one of timing--not the amount of dollars.) The Obama team will try to spin all this as having little effect on long-term deficits. They will also avoid the much-maligned term "stimulus" even though it is a classic textbook stimulus proposal.

The other reasons the proposal will win little support are: (1) the costs of the proposal will be offset by loophole closing provisions fiercely opposed by business and (2) the business community knows its best ally is the Republican Party. This is particularly true of the small business owners that are obsessed with extension of the Bush rate cuts for the highest income brackets.

With their backs to the wall in 1981, Democrats tried to out-Reagan Reagan with massive business tax cuts. But it got them little support and a massive amount of disrespect for their obvious last-minute pandering to big business. Look for more of the same here.

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