President Obama’s Tax Plans

As expected, President Obama’s speech from Cleveland last night unveiled his desire to expand and make permanent the business research and development tax credit, institute a tax deduction for any business capital investment, and to extend the Bush tax cuts for taxpayers earning under $250,000 a year. Furthermore, President Obama has introduced plans to invest $50 billion into public works and infrastructure projects.

Of course the big question is will tax cuts help our economy recover? The short answer: we don’t know. These tax cuts could end up like the Cash for Clunkers or the First Time Homebuyers Credit – meaning they spur people, who were already planning to make such purchases, to buy during a small window of time. In essence, it only changes the timing of the purchase, and when the window of time ends, sales fall off the deep end.

Some would argue that these programs were helpful to the economy, and softened the home and new car sales slump our nation was facing last year. At the end of the day, like any economic activity, it’s impossible to say what would have happened without the Cash for Clunkers or First Time Home Buyer’s credit. For all we know, the downturn could have been much worse.

Taxpayers who were able to take advantage of those programs were helped by the extra tax break, and likely used the money they saved on other purchases, adding more economic activity.
I can tell you that business owners will happily utilize any tax break we can get. I am a fan of incentivizing research and development, and the jobs that come along with it. Our nation should be at the forefront of new technologies and ideas.

While we don’t know what the end result will be, or if Congress will even take action on President Obama’s proposals, we can take this as a jumping off point for a discussion about how to encourage our economy.