I can't say I'm surprised that a payroll tax cut isn't in the business stimulus agenda that Barack Obama has unveiled over the last couple of days. The political optics of draining the imaginary trust fund are terrible.
So what do we have instead? R&D tax credits, $50 billion worth of infrastructure spending, and full expensing of qualified investments made before the end of 2011.
I have a gut aversion to things like the R&D tax credit, because I have a pretty strong preference for a simpler tax code. But I suppose it's possible that this actually makes the world economy more productive, and if the government is determined to spend money, there are certainly worse wastes of our tax dollars.
Is it stimulative? Modestly at best. As best I can figure, the people this money will be going to are relatively affluent, and not suffering from particularly high unemployment.
The infrastructure spending may or may not be a good idea; I'd have to have more details to know. Japan managed to waste a phenomenal amount of money on useless "infrastructure", so I'm not inclined to get carried away by the fact that such spending could theoretically make the economy more productive.
As with our previous round of infrastructure spending, however, any stimulative goals are in direct conflict with the desire to use the money on projects that will enhance national productivity for years to come. I argued against the myth of "shovel ready" major infrastructure projects the last time we had such a proposal on the table, and these arguments are even thinner now, since the quickest programs have already been used up. Given the pace of federal contract spending, if we want to use this money to make serious improvements to the nation's physical plant, we will be spending it years from now.
The investment expensing is the most expensive item--almost $200 billion dollars, according to multiple news accounts. But that's not actually the long term cost, since all this really does is allow companies to accelerate the depreciation allowances they would normally take over the next couple of decades, taking them in one giant whack rather than forty small pieces; they're just changing the timing, not the amount of the deduction. Of course, inflation will eat away some of the value of the tax dollars we collect in later years, and we have to pay interest on the money we borrow, so this will cost something--but not, I think, nearly as much as the headline figure.
As policies go, this is a decent one. It's temporary, and self financing--we borrow the money now, but automatically collect higher taxes later to pay for it, because companies won't be taking a depreciation allowance on the equipment they've expensed this year. It might have some stimulative effect, and has little net cost to the government.
But like the other policies he's pushing, I doubt the stimulative effect will be large. For businesses with decent cash flow, the cost of investment is currently low (a topic my next column addresses). Getting a loan is a huge pain in the tuchus, with lots more paperwork and deep scrutiny of things like receivables. But the money's actually cheap. What's stopping people is uncertainty about the business environment, and to a lesser extent uncertainty about the regulatory environment, including their own personal taxes*.
Obviously, on the margin, this will make some investments more attractive, but I'd expect that effect to be swamped by the massive uncertainty surrounding the economy. But since this isn't too expensive, it's certainly worth trying.
* I know saying this is going to anger my liberal readers, but I am hearing it over and over, and I'll try to talk about why it really does matter somewhat in a future post.
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is a columnist at Bloomberg View
and a former senior editor at The Atlantic.
Her new book is The Up Side of Down