Scrutinizing The Obama Tax Plan
Tuesday, January 06, 2009PAUL KANGAS: Barack Obama said today he sees the nation's deficit climbing to the trillion-dollar level this year. That dire prediction came as the president-elect reviewed the budget outlook with his economic team. Obama also pledged to scour the budget for savings, beginning with a ban on earmarks in the stimulus bill he's preparing. He said the savings are needed because the budget situation is so bad.
PRESIDENT-ELECT BARACK OBAMA: We're already looking at a trillion- dollar budget deficit or close to a trillion-dollar budget deficit and that, potentially, we've got trillion-dollar deficits for years to come, even with the economic recovery that we are working on at this point.
KANGAS: And with those trillion-dollar deficits, President-Elect Obama says comes a responsibility to spend money wisely. Washington bureau chief Darren Gersh looks at whether some of the tax plans expected in the Obama economic recovery package meet that standard.
DARREN GERSH, NIGHTLY BUSINESS REPORT CORRESPONDENT: Almost half of the Obama tax cuts could go to middle-class families in the form of a tax credit. At roughly $70 billion a year, labor economist Harry Holzer expects that credit will be the largest cut in the Obama recovery plan.
HARRY HOLZER, PROFESSOR, PUBLIC POLICY, GEORGETOWN UNIV.: I think it will be modestly effective. It will generate some extra spending. The more of it that's spent at the lower to middle end, the more stimulus you'll get for it, because those people need the money and will spend the money and will not save it.
GERSH: But much of the money will go to families making well over $50,000 a year and they are more likely to pay down credit card bills or otherwise stash the cash. For businesses, an idea that could pack more economic punch is the so-called loss carry back. That's a fancy way of saying companies that have lost money last year -- anyone in construction comes to mind -- can get back some of the taxes they paid during their boom years. Tax expert Pam Olson says the loss carry back could be effective now.
PAM OLSON, PARTNER, SKADDEN ARPS: It is going to put cash into their treasuries at a time, in particular, when a lot of companies are still having difficulty borrowing, raising enough capital to meet their needs.
GERSH: Other business tax incentives, while popular, may not offer much of an economic lift. Bonus depreciation, which allows companies to write off the cost of equipment more quickly, sounds like a good idea, but companies aren't likely to have many profits to write off this year or next. Tax experts are also skeptical of Obama's plans to offer tax credits to companies that hire new workers. That credit is likely to make up a small fraction of the overall cost of a new employee. And says tax analyst Len Burman, the credit raises a basic question of fairness.
LEN BURMAN, DIRECTOR, TAX POLICY CENTER: If the baseline is current employment and one company had just cut 50,000 jobs, but then adds 10,000 new jobs, do they get a credit, whereas the company across the street that struggled to keep the level of employment constant would get no subsidy? Does that make sense?
GERSH: Most analysts think tax cuts work best over the long run by creating incentives to work, save and invest. But the goal now is to get people to spend and invest right away, a tough and potentially expensive thing to do. Darren Gersh, NIGHTLY BUSINESS REPORT, Washington.
