Yeas And Nays On Obama’s Stimulus Tax Cuts

taxcut2.jpgAs reported yesterday, President-elect Barack Obama is planning to direct up to 40 percent of his proposed economic stimulus plan toward a variety of tax cuts.

Today, specifics about some of the cuts have come forward, and while a few are laudable, such as the initiation of Obama’s “Making Work Pay” proposal, others have precious little to do with stimulating the economy and seem intended only to entice conservatives into supporting the legislation.

Here are two of the tax cut proposals, one of which is a properly targeted cut for lower-income families, and another that’s simply a boon for corporations:

Yea – Expanding Child Tax Credit:

This proposal “would grant an estimated 5.5 million poor children access to the credit for the first time, and expand the tax benefit for millions more poor children who currently qualify for only a partial credit.” As former Secretary of Labor Robert Reich pointed out while advocating that the Child Tax Credit be fully refundable, “Giving American families more economic security during this meltdown isn’t just fair. It’s also good policy, because the money they get to buy goods and services keeps other people in jobs.” Indeed, under this proposal a part-time working mother earning $5,000 a year would receive $300 that would almost assuredly make its way back into the economy.

Nay – Refunds on corporate losses:

A separate proposed provision “would provide businesses with billions of dollars in refunds” by enabling companies who posted a loss last year “to get refunds for taxes paid as far back as five years earlier.” Projections indicate that there were 107 companies in the S&P 1500 that lost money in 2008. And, as Dean Baker points out, “really big losers, like Robert Rubin’s Citigroup, and other badly failing financial institutions, are losing much more money in 2008 and 2009 than they earned in 2006 and 2007″ and stand to reap huge benefits.

The Hill reported today that the tax cut announcement was “preceded by a lobbying push by businesses, which argued that providing tax relief may be a better way of reviving the economy than simply directing money to pay for road and bridge construction.” And even if Obama is including these business breaks for the sole purpose of drumming up widespread conservative support, it needs to be acknowledged that their stimulative effect would be decidedly minimal.


Paul Krugman noted that “letting businesses get refunds on past taxes based on current losses, which is reportedly a key feature of the plan, looks an awful lot like a lump-sum transfer with no incentive effects.”

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