President's Latest Economic Proposals Include Some Good Ideas That Could Be ImprovedPresident Barack Obama, confronted with an anemic economic growth rate of 1.6 percent in the second quarter and an unemployment rate hovering near 10 percent, has unveiled new measures to jump-start the still-rickety economic recovery. But he remains resistant to one move that would encourage business and promote growth. The president has proposed spending an additional $50 billion next year on highways, railroad construction and airport improvements. He wants to adopt a permanent research and development tax credit and allow firms to write off 100 percent of the cost of their investments in new equipment this year and the next. Taken in the abstract, all of these ideas have appeal. The nation does have infrastructure needs. But they would be financed by a phased elimination of existing tax breaks for manufacturing and the oil and gas industries, which could create new problems. And only slightly more than half of the $275 billion already allocated for contracts, grants and loans in last year's stimulus package has been spent. The last stimulus has had some good effects, as anyone connected with the U.S. auto industry can attest. But the fact remains that the $500 billion in stimulus funds spent has still left the nation with sluggish growth and high unemployment. Still more stimulus right now may simply illustrate the law of diminishing returns. It's certainly hard to argue with a permanent increase in the research and development credit for business.
The capital investment tax credit could have a beneficial effect as well. More capital purchases could improve productivity and allow for expansion, better pay and more jobs at the firms that take advantage of it. But it is temporary — so it's possible it will simply cannibalize some future investments. That's always a risk with temporary tax benefits. But it is an improvement. Finally, the president was adamant that he wouldn't budge on his position that the Bush tax cuts for upper-income earners must be allowed to expire at the end of this year. But a number of economists are suggesting that the all of the Bush tax cuts be extended — at least for now. Both Martin Feldstein, a former Reagan economic adviser, and Peter Orszag, until recently Obama's own budget director, have argued for extending for two years all of the Bush tax cuts, even for those earning more than $250,000 a year. The reason, as Rutgers University economist Michael Bordo recently wrote at the Economist magazine's website, is that raising taxes on upper-income earners, "which include many of the nation's entrepreneurs — would hamper investment and future economic growth." The country, like the president, is frustrated at the slow pace of economic recovery and the lingering high rate of unemployment. The president's recent mix of proposals included some good ideas. Congress could make them better. REPRINTED FROM THE DETROIT NEWS DISTRIBUTED BY CREATORS.COM
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