The Good, the not Bad, the Ugly, and the Unknown of: Son of Stimulus
President Obama’s new proposals to improve economic growth are now leaking out. There are three proposals on the table:
- $50 billion of increased infrastructure spending
- Making permanent the research and experimentation tax credit
- Immediate expensing of investments in 2010 and 2011
The Good: Expensing capital investment.
- Finally Obama reaches across the aisle. John McCain proposed a 3-year window for expensing of investments with 3, 5, and 7-year lives during the 2008 campaign.
- The Obama proposal has only a 2-year window (2010 and 2011), but permits even long-lived (15-year) investments to qualify. The combination of long-lived investments and tax-deductibility of borrowing costs is a recipe for tax shelters. Will the Obama Treasury disallow the interest deduction for participating firms?
- A better proposal would be to focus the incentive on 3-year and 5-year investments (or, perhaps, as long as 7-years). This would have no budget cost.
The Not Bad: A permanent research and experimentation credit.
- A permanent credit is good tax policy and the simplification of a complicated credit makes sense. It was proposed every year in the Bush Administration.
- This is unlikely to have much economic impact. Businesses largely expect the credit to be extended and plan accordingly. This will only remove some uncertainty and provide a slightly bigger credit.
The Ugly: New infrastructure spending.
- The specifics – National Infrastructure Bank, NextGen, etc. – are warmed over budget proposals.
- The stimulus has shown there are no shovel-ready projects; finding $50 billion more at this point is ludicrous.
The Unknown: How the proposals are paid for:
- Obama has promised they will be budget neutral.
- The tax increases ultimately proposed (restricting deferral of international taxes, taxing carried interest and enterprise value, etc.) may undercut the policy desirability and political viability of the proposals.
- The best way to pay for proposals would be to use unspent stimulus dollars or to defer or eliminate the massive spending under the new healthcare law.