Senate Dems unveil their tax cut proposal
by Linda Beale
Senate Dems unveil their tax cut proposal
Senate Democrats, led by majority leader Harry Reid, unveiled a $26 billion tax-cut bill on March 26, 2012. See, e.g., Richard Rubin, Senate Democrats Said to Prepare $26 Billion Tax Cut Measure, San Francisco Chronicle (Mar. 26, 2012).
The proposal revives the lapsed 100% expensing provision for capital investments, extending it through the end of 2012 and would provide a tax credit for businesses that expand their payrolls this year.
The expensing provision is foolish, but it looks like Senate Democrats are more interested in playing the bipartisanship game than they are in good legislation. Why is it foolish? For several reasons.
1) there is already a (temporary) bonus depreciation deduction of 50%.
2) an expensing provision that applies retroactively to already-purchased capital equipment cannot, by definition, have incentivised the purchase of that equipment.
3) providing this kind of additional break to large corporations is a corporate subsidy that has little to do with creating jobs and nothing to do with good tax policy. It has little to do with creating jobs because corporations will simply accelerate purchases to garner the benefit but may not increase production correspondingly. It has nothing to do with good tax policy because accelerated depreciation already allows deductions faster than economic lossm amounting to yet another pure tax subsidy for businesses.
4) Companies that need to purchase equipment in order to compete will make the appropriate decision to purchase based on company revenues and expenses, without needing a subsidy from the tax code. For businesses where some investment in capital equipment is expected eventually, it is likely that the provision will subsidize an acceleration of an investment that would have been done anyway, amounting to a mis-allocation of resources to garner the extra tax break, while temporarily available.
The subsidy for payroll expansion is at least more directly connected to a desired social goal of creating more jobs to reduce the unemployment problem and something that both small and large businesses can benefit from. The proposal calls for a 10% tax credit for the first $5 million of payroll expansion in 2012, capped at half a million. Payroll expansion can be either new hires or wage increases.
Meanwhile, the GOP-led House is planning about double that amount as an outright giveaway to business. Cantor sponsored a 20% tax cut for all businesses with fewer than 500 workers. Those businesses are not necessarily “small” and the provision is not linked to payroll expansion, as Schumer noted. Id.
crossposted with ataxingmatter
“It has little to do with creating jobs because corporations will simply accelerate purchases to garner the benefit but may not increase production correspondingly.”
A great myth is that corporations will spend money just to gain tax benefits, which of course would be irrational if it happened.
And even if the purchasing corporation used the same number of employees, the selling corporation has had an increase in business.
About the payroll tax subsidy, the subsidy for wage increases could turn into a subsidy for inflation, not exactly what we had in mind.
can’t say i know for sure what you are talking about here,
but this beginning farmer was very glad to find out after he had made the purchaces that he could deduct the whole thing this year rather than drag it out over seven to fifteen years of “depreciation.”
means i may be able to buy a little more next year, y’know, just to build something that can make money.
don’t really understand the reason for “depreciation” anyway. the money is spent when it’s spent.
subsidy for payroll expansion
payroll tax subsidy
thanks, rusty, i would have missed it.
just a few years ago they were telling us that the “employers share” of the payroll tax was “really” the employees money.
but now they have found they can hurt SS more by calling it a “jobs killing tax.”
and of course it’s the liberals who eat this stuff up.
just to spell it out: if it’s the employees money it isn’t a “tax.” and cutting the “tax” is cutting the “employees money.” no doubt employers are glad to get workers for less money. but they’ve always been glad about that. it just didn’t used to be “liberal” policy.
so i’ve got a plan… how ’bout letting the employees put “their” money into their social security plan so it will be there when they need it, and letting the “pfree market” take care of itself. and, of course, pay the taxes they need to pay to pay for the government services they bought… including the prior tax cuts that were going to pay for themselves.
its just a giveaway to campaign contributors…the rest is smoke & mirrors…
rjs
i am ready to believe it’s all smoke and mirrors. but not being either an economist or a businessman i still don’t understand depreciation, or depreciation for tax purposes.
if i buy a machine and the machine will last ten or twenty years, i still pay for it in the year i buy it.
i may not want to take the full deduction… which i think is justified as long as “income” means income less expenses… in the first year, because it’s better to save up some of the “deduction” for later years when either i am making more money or paying more taxes.. but then given the “time value of money, i’m not so sure even that works out.”
i can see why the gov would want you to spread the expense over more years… you end up getting a tax benefit that is worth less … that time value of money thing..
but i don’t see any “natural” reason for depreciation… except to make the books look more balanced from year to year.. but i can’t see any reason why that really matters either.
can you give it to me in twenty five words or less?