Transcripts

"Economic Choices '2008"-McCain on Business Taxes

SUSIE GHARIB: Senator John McCain will take the spotlight tonight as he accepts his party's nomination at the Republican National Convention in St. Paul. McCain is expected to renew the Republican traditional commitment to cut taxes. As we continue our "Economic Choices '08" coverage, Darren Gersh reports some analysts consider the McCain plan a mixed bag for business and investment.

DARREN GERSH, NIGHTLY BUSINESS REPORT CORRESPONDENT: The centerpiece of John McCain's tax plan is a deep cut in the corporate tax rate. Actually, there is a growing consensus in Washington that something like that is a pretty good idea. Tax expert Martin Sullivan says the goal is to make the U.S. more competitive with the rest of the world.

MARTIN SULLIVAN, ECONOMIST, TAX ANALYSIS: If you look around the world, corporate tax rates are declining: In France, in Germany, in Canada, everywhere, small countries, large countries.

GERSH: McCain would leapfrog the U.S. ahead. Over five years, he proposes to phase in a cut of the top corporate tax rate from 35 percent to 25 percent. In addition, McCain plans to keep the current 15 percent rate on capital gains and dividends, which could help make capital available to business. Like Senator Obama, Senator McCain would make the research and development tax credit permanent. Senator McCain also backs a short-term plan to allow businesses to expense what accountants call "short-lived assets." Tax expert Clint Stretch says that could have an immediate impact on the economy.

CLINT STRETCH, MANAGING PRINCIPAL, DELOITTE: So, things like office furniture, cars, computers, that's very helpful. It's something that looks like a stimulus package.

GERSH: But businesses are worried about how McCain will make these promises balance out. To begin with, he has proposed raising $30 billion a year by cutting off "corporate welfare," as he calls it.

STRETCH: What is that $30 billion? Because if you did nothing else, you just went after $30 billion from corporations, that's like a 10 percent tax increase. So businesses are very cautious about that. They're wondering, is that my core incentive that he's talking about going after? GERSH: The Tax Policy Center figures McCain's business and investment tax cuts would cost more than $1.2 trillion over 10 years, far more than any spending cuts that are likely to be enacted, which means the country would go even deeper into debt. When he adds it all up, the American Enterprise Institute's Alan Viard is lukewarm on the McCain plan.

ALAN VIARD, RESIDENT SCHOLAR, AMERICAN ENTERPRISE INSTITUTE: If the McCain plan were adopted, it would have ambiguous effects on investment. On the one hand, the corporate rate reduction would certainly be an incentive to increase investment. There would be an increase in the deficit, which might boost interest rates to some extent.

GERSH: Viard and other analysts say there is little chance the McCain plan would ever be adopted. Democrats are expected to expand their majorities in Congress, and helping another Republican president cut taxes is not their top priority. Darren Gersh, NIGHTLY BUSINESS REPORT, Washington.