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Obama hopeful businesses are ready to help stimulate economy
Business man taking portfolio to job interview
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Kai Ryssdal: I'm just going to take an educated guess for a second and say that for five hours today, President Obama was probably the worst paid guy in the room. He invited 20 CEOs over for lunch, and a discussion of what private industry can do to help get the economy going again.
With the Fed and the $600 billion it's putting into the economy, and the $800 billion stimulus from the tax cut deal, the president was looking for ideas from business leaders about how to seize what he called the promise of this economic moment.
Marketplace's John Dimsdale reports.
John Dimsdale: As he walked back to the White House after today's meeting, President Obama said he's optimistic businesses are ready to start spending some of their reserves.
Barack Obama: By working together, we can get some of that cash off the sidelines.
Businesses are hoarding a record $2 trillion in profits. To help pry more of that cash loose, the tax deal in Congress would let companies write off all of the investments they make next year in new plant and equipment. Economic forecaster Richard DeKaser at Woodley Park Research says with demand looking up, businesses are ready to spend.
Richard DeKaser: For example, if large corporation were to make large outlays for transportation equipment or information technology in 2011, which they now will have every incentive to do, the increased economic activity in those industries will create more jobs, more incomes, which will help stimulate economic activity more generally.
But some wonder if there are enough incentives. Matthew Slaughter is a former economic adviser to President George Bush. He says businesses are anxious about what happens after the equipment tax breaks phase out at the end of 2012.
Matthew Slaughter: That won't permanently, magically increase capital investment by companies in part because it's temporary. But also in the out years, companies, what they give up are the tax loss write-offs they would have had in later years.
Slaughter says businesses are looking for more permanent job-creating incentives, like overall tax reform that lowers rates and allows corporations to bring home profits earned overseas, tax-free.
In Washington, I'm John Dimsdale for Marketplace.
@David Rigby:
"Whatever happened to the incentive that created free enterprise: the possibility of making a profit?"
The profit margins are getting increasingly narrow as various bills get passed by the Obama administration: the finance reform bill increased banking fees, the health care reform bill increases employee coverage costs, cap and trade will drive the cost of electricity up...
Obama seems to be hell-bent on making doing business in the US a losing proposition.
@Sam Mandke:
"I don't see how tax incentives will affect production and hiring decisions if companies don't already feel that demand is increasing. This could end up being just another give away to large corporations."
Well, as a small business owner, I can upgrade the computers we've been using next year, even though some of them are only 2 years old, thanks to an accelerated depreciation schedule. I can also purchase more product development resources and test equipment.
Who says large corporations are the only ones that will benefit from this? Small businesses have capital outlays as well.
My recollection is that Marketplace has done several stories now the downward spiral relationship between demand, production, and unemployment: if there is no demand, companies cut production, which means they lay off more people, who in turn have less demand, which leads to less production, and companies lay off more people, which leads to less demand... I don't see how tax incentives will affect production and hiring decisions if companies don't already feel that demand is increasing. This could end up being just another give away to large corporations.
We need the press to stay on this story like white on rice.
Any incentives must result in jobs being created within the U.S.
Kids won't major in STEM disciplines because "those jobs just get outsourced anyway." We need to invest in the education of the next generation, and we need them to be motivated to learn as much as possible and invent the future. But that won't happen unless the kids see a future of gainful, meaningful, fulfilling employment.
IMHO, incentives to invest in plant and equipment would be misplaced. We need incentives that result in investment in the workforce.
Companies aren't "hoarding" cash. They are hunkering down for an increasingly hostile business environment. All major pieces of Obama's agenda have translated directly into a higher cost of doing business: Health Care Reform, Financial Reform, Cap and Trade...
And the equipment tax break you mention will have the same exact predictable consequences that the first time home buyers' credit and the cash for clunkers programs had. A short-lived spike, followed by an extended dip.
The equipment tax credit will be exactly the same. Obama doesn't know how to fix the problem so he borrows against the future with temporary stimuli.
If he really wanted to stimulate the economy, then he would (a) give clarity to the business environment with a long-term vision (i.e. not waiting 2 years before extending the current tax rates, or having closed door meetings where some companies--the ones with unions contributing to his campaign--get carve-outs, but most don't), and (b) he would make the corporate climate more conducive to doing business in this country, rather than treating the private sector as a cash cow to pay for expensive social programs. Obviously this is anathema to his progressive agenda.
President O, don't hold your breath. Private Enterprise cannot create Demand when no Demand is there. All the GOP salivated over tax-cuts cannot create Demand.
Only near full employment can. FDR understood all this. Supposedly, you've studied FDR, but appear to have forgotten the lessons.
As much as you have given away to the Top .5%, at least you may have gotten UIB continued for 13 months. Otherwise, we would have begun the Double-Dip before Easter.
What about the 99 Weekers??
