Progressive Breakfast is the morning roundup of what progressive movement members need to know to start the day.
Pushback Against Business Tax Cuts
Krugman blogs his concern: “we’re probably looking at a plan that will shave less than 2 percentage points off the average unemployment rate for the next two years, and possibly quite a lot less. This raises real concerns about whether the incoming administration is lowballing its plans in an attempt to get bipartisan consensus.”
Boston Globe sums up the criticism regarding Obama’s consideration of $300B in tax cuts:
Roberton Williams, an analyst with the nonpartisan Tax Policy Center, said yesterday that Obama “has moved from the liberal side of the scale toward the conservative side by adopting the tax cut approach. . . . The key way to think about this is from a political perspective rather than an economic perspective.”
He questioned whether businesses would create a job for a one-time $3,000 credit, and whether profitable corporations need a new tax break.
Notably, Obama’s new approach drew immediate applause from an unlikely quarter, the US Chamber of Commerce, which said it was “encouraged” that the tax cuts “are large enough to make a difference and will benefit individuals and businesses.”
A Chamber official said yesterday that the ideas were pushed during “many dozen” meetings with Obama’s transition team during the last few weeks.
But Jim Horney, director of federal fiscal policy at the liberal-leaning Center on Budget and Policy Priorities, said the business tax breaks don’t offer “the most bang for the buck.” He said the money would be better spent on aid to cash-strapped states that are slashing programs and laying off workers, an increase in unemployment insurance, tax relief for workers, and infrastructure spending.
The Globe also notes the tax cuts are likely to attract the vote of GOP Sen. Judd Gregg, ranking member on the Budget Committee, formerly concerned about the budget deficit.
Dean Baker sees one tax cut as geared to helping Citigroup: “The media seem to have largely overlooked the Citigroup tax credit in their discussion of the latest items in President Obama’s stimulus proposal. According to the Washington Post, the proposal will allow companies to write off current losses against taxes paid over the last 4-5 years, not just 2 years, as in current law. There are relatively few companies that could benefit from this tax break since most companies will not have losses so large that they would need more than two years of tax payments to balance them against. ”
WSJ looks at the weakness with one of the business tax break proposals:
…accelerated depreciation … is essentially a two-year extension of a tax break included in an economic-stimulus package passed early last year. Research on a nearly identical tax break enacted in 2002 found little benefit. For example, a sizable 2006 Federal Reserve study concluded that the tax break had “only a very limited impact…on investment spending, if any.” Economists have offered possible explanations for why that break didn’t have a bigger impact. One potential issue is that the tax break means businesses are expected to accelerate spending at a time when they are concerned that consumers won’t buy their products. As a result, much of the tax break goes to companies for spending money they were going to spend anyway.
TaxVox’s Howard Gleckman: “On the business side, Obama aides leaked three ideas. The first: extending bonus depreciation, another Bush measure that would allow companies to write-off the cost of equipment faster. The second: giving companies immediate refunds by letting them use using last year’s losses to reduce prior year tax liabilities. Idea #3: giving businesses a refundable tax credit for each new worker they hire or even each employee they don’t lay off. The net operating loss idea makes some sense. But other than trying to buy votes from pro-business Capitol Hill Republicans, it is hard to see what the other two schemes would accomplish.”
Digby on the proposed payroll tax deduction: “One of the problems with this kind of tax cut (as opposed to a one time rebate) is that you will likely never get the cash flow back into the treasury after the crisis is past.”
HuffPost’s Mark Weisbrot: “The exact details of the package are not as urgent as its size and the speed with which it is implemented. President Bush and his Republican party have unforgivably destroyed thousands of businesses and hundreds of thousands of jobs by delaying the package until Obama takes office. Further delays by Republicans in Congress should be met with mass outrage. If anything, the Obama team’s proposed stimulus may not be enough. Nobel laureate economist Paul Krugman has suggested four percent of GDP , or $600 billion for just next year.” [That's over one year, not two.]
Economist’s View posts an interview with economist Ken Rogoff who observes: “adding a trillion dollars in debt is quite manageable for the United States.”
ABC: While $775B over two years is the most oft-cited number for the still-in-progress economic recovery plan, Sen. Maj. Leader Reid said yesterday: “[Obama] has indicated that there’s at least 20 economists that he’s talked with, and all but one of those believe it should be from $800 billion to $1.2 trillion or $1.3 trillion.”
I note that a $1T package could best accommodate investment needs along with the tax cut proposals.
Conservatives struggle to find footing
Conservatives were eager to get the econ bill online in advance of a floor vote, in hopes of finding a handful of small items they could use to distort and mock the overall package. In yesterday’s meeting with congressional leaders, Obama was not phazed. From ABC:
House Minority Whip Eric Cantor, R-Vir., suggested said the bill should be put on the Internet a week before Congress votes on it.
Mr. Obama smiled and said something along the lines of, “maybe if I was better at faking it , I’d say, ‘Great idea — we’ll take you up on that.’ But we’ve actually talked about this idea.”
Obama turned it over to incoming White House chief of staff Rahm Emanuel who essentially said they would do the Republicans one better. They’re planning a Google-like search function to show every program funded by the stimulus package, whether it comes in under or over-budget, whether it is meeting its intended purpose, and how many jobs it is creating.
“Tell you what,” Obama said, “we’ll still call it the Cantor idea.”
LA Times sees a softening of Republican opposition.
Right Wing News adds to the conservative complaints of Sen. Min. Leader McConnell.
WSJ Editorial Board tries to make $1T seem ridiculously large, but inadvertently accomplishes the opposite.
The Next Right’s Patrick Ruffini asks, “Is the Republican Party For or Against Trillion Dollar Deficits?”
FDL’s Ian Welsh criticizes Obama for conceding before the negotiations starts: “In order to get those 80 votes, Obama has pre-compromised his stimulus bill, which will define the first year of his administration more than anything else, loading it up with 310 billion of tax cuts, making up 40% of the total. (I will also note that he and his team seem to have flunked negotiation 101, because you don’t pre-compromise if you know how to negotiate…”
What Else Should Be In It?
WSJ reports Obama is considering a refundable child tax credit for the plan, meaning some poor families who don’t earn enough to pay federal income taxes would now qualify for a partial credit.
HuffPost’s Mark Weisbrot pushes health care and green investment: “The federal government can subsidize health insurance for the uninsured, with public sector insurance like Medicare, as President-elect Obama promised during his campaign. This would advance health care reform while also providing jobs and spending in the health care sector. To begin the transition to a less fossil-fuel based economy, the federal government can also subsidize mass transit, the retrofitting of buildings to make them more energy efficient, and start to build a 21st century electricity grid that can handle wind and solar energy sources.”
National Journal’s Drew Altman and Karen Davis discuss other early health care policy ideas.
NYT: “At one of their meetings, Mr. Obama and Ms. Pelosi discussed a plan to push forward quickly with a bill to expand the State Children’s Health Insurance Program, an effort that President Bush has blocked.”
Conservative healthcare policy achieves goal
NYT reports “Spending Rise for Health Care and Prescription Drugs Slows”, but GoozNews notes the reason for that is nothing to be happy about:
Among private payers, private householders have emerged as the largest single financier of our out-of-control health care system, largely due to higher co-pays, deductibles and other out-of-pocket expenses. Individuals and families now finance 31 percent of total health care spending compared to just 25 percent for businesses. Those who wanted consumers to have “more skin in the game” to hold down costs have gotten what they wanted. The effect — health care spending still growing at a rate over 50 percent faster than the rest of the economy — was less than advertised.