Tax Rascal

Obama’s Shocking Tax-Cut Plan

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Obama’s Shocking Tax-Cut Plan

It’s startling to hear about a giant, $300 billion tax cut from the tax-and-spend party (which beat the spend-and-spend-and-spend party in a hotly contested election). Incredibly, after months of childish bickering on both sides, this new tax plan treats the average taxpayer like an adult. How?

It’s a cut in withholdings, rather than a refund check. If you get $300 back in one lump-sum, you can spend it all on something really fantastic — and at the end of your evening, you’ll feel like you got dinner and a concert on Obama’s dime. But turn that $300 into weekly payments of $6, and what do you get? An extra Obama-tizer at TGIF? Paying this money out in a small and forgettable way instead of in a giant lump is a great way for politicians to take the back seat to practical considerations.

Some of it goes to corporations. Even though corporations really collect, rather than pay, taxes (the money gets taken from shareholders, customers, or employees, because the corporation doesn’t have any real existence beyond how it interacts with them), it can be politically hard to cut taxes for rich companies. But those same companies pay most of the wages in this country, and provide most of the products that those wages are spent on — so when they’re better-off, we’re all better-off (though some of us are, of course, much better off than others).

What about infrastructure? The original Obama stimulus plan was more spending on highways and similar projects. That used to be an easy way to increase employment, since it meant sending hundreds of people out with shovels; now that it means sending half a dozen people out with $2 million worth of construction equipment, it’s not such a good deal in terms of dollars spent to jobs created. We could look for projects that create more jobs, but why not let the average American business do it for us? If working is more rewarding, and there are more rewards to distribute, hiring will happen.

On the other hand, the new tax cut plan isn’t perfect. A few warts:

Some ill-considered details:

One provision Obama is weighing is a one-year tax credit to companies that hire new workers or forgo laying off existing workers.

Great. Except that a huge part of the problem with our economy now is that we have too many people in huge companies that refused to lay off workers, rather than in small companies that could hire more of them. There are some big companies out there that could use a recession as a chance to get back down to a reasonable size again — but not if they’re punished for laying off people they ought to lay off anyway. And paying to hire is no better; it’s a great way to get lots of customer-service jobs in the short term instead of a few product-improving jobs in the long-term.

Another tax break under consideration would allow businesses suffering losses to go back as far as five years — versus the current two years — to recoup some of the taxes paid.

All else being equal, this gives more money to companies that were profitable in the past, rather than companies that are growing now. So it’s cash for the US Steels instead of the Googles. While US Steel has been a great company, I think Google is closer to what our future looks like (or should).

Overall, this is great — and surprising! — news for taxpayers. Of course, passing tax cuts is the easy part of economic recovery, but it’s important nonetheless.

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