Proposals won’t ease economic spending woes

Freedom New Mexico

Three stimulus proposals announced over the Labor Day weekend by President Barack Obama are a curious stew.

It’s possible the administration finally realizes that taxes have economic consequences.

But the proposals may be too little to stimulate reticent businesses, fearful of expanding or investing because of monumental tax landmines that lie ahead, including expiration of the Bush tax cuts, and fear of unknown costs buried in Obamacare and other pending tax and regulatory proposals.

Then there’s this: Obama’s latest ideas to stimulate the economy, reasonable as some may be, could be posturing to mitigate a potentially disastrous November election for Democrats. Obama’s proposed fixes are unlikely to be passed when Congress returns Monday because it will adjourn within weeks so the politicians can hit the campaign trail.

That means it’s unlikely Congress could approve Obama’s proposals until at least the lame-duck session after the election. And that means even less motivation for Democrats to embrace essentially Republican ideas.

Obama’s stimulus proposal would allow businesses to more quickly write off 100 percent of new investments in plants and equipment through 2011, which, in theory, could spur business spending.

The administration estimates accelerated tax write-offs would cut taxes by almost $200 billion over the two years. The question is whether they will spur the desired economic activity. Businesses already have access to loans at nearly record-low interest rates but choose not to borrow for new investments or expansion. Banks are flush with cash, but are making few loans. Consumers, staggered by a 9.6-percent national unemployment rate and businesses reluctant to assume more expense by hiring, understandably also are reluctant to spend.

The immediate culprit is the uncertainty the Obama administration has introduced into an already sagging economy. Businesses, for example, are loath to assume added expenses even as they calculate their new costs under Obamacare. Should the Bush tax cuts expire in January, the so-called “wealthy” will be hit with a $921 billion cumulative tax increase. Many, if not most, of those taxpayers are profitable small-business owners, one of the few segments still prospering.

Unless Congress extends the Bush tax cuts, those profitable small businesses will be squeezed like so many others in this Obama-weakened recovery, and expansion and investment aren’t likely to be high on their to-do lists.

The president’s other two proposals would expand research and experimentation tax credits, and spend another $50 billion on building roads, railways and runways. The tax credits are long overdue, but are not our favorite way to treat taxpayers. Rather than temporarily bribing them by letting them keep some of what they pay the government, taxes on businesses should be eliminated across the board. As for the proposed $50 billion infrastructure spending, we doubt it will be noticeable, considering the ineffectiveness of the previous $814 billion stimulus package.

What the administration and Congress should do is reduce taxes, reduce government spending, which drives the need for higher taxes, and ease off costly regulations that impede economic recovery. We don’t expect that before the election, and certainly not from a lame-duck Congress.