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Reich: Corporate tax cuts not the answer

Robert Reich

TEXT OF COMMENTARY

Kai Ryssdal:The economic debate that's happening right now isn't really about the economy. It's all politics, and election day and which party looks like they're doing more to get things back on track. That's the not-so-subtle subtext of the president's new plan for business tax breaks. Republicans and companies have been in favor of 'em for years.

Commentator Robert Reich not so much, and especially, not now.


Robert Reich: The economy needs two whopping corporate tax cuts right now as much as someone with a serious heart condition needs Botox. The reason businesses aren't investing in new plants and equipment has nothing to do with the cost of capital. It's because they don't need the additional capacity.

Consumers aren't buying enough. They're still under a huge debt load; they have to start saving, because their nest eggs are worth substantially less; and they've lost or are worried about their jobs and pay. Obama's proposed corporate tax cuts won't generate more jobs, because they won't put any more money in worker's pockets.

Corporate lobbyists have been seeking these tax cuts, because corporations are investing in automated equipment and software. These investments are designed to boost profits by permanently replacing workers and cutting payrolls. The tax cuts Obama is proposing would, therefore, make such investments all the more profitable.

Obama proposing them in order to put Republicans in a bind. If they refuse to go along, he can justifiably say they have no agenda other than obstruction. After all, the only thing they've been arguing for is lower taxes. On the other hand, if Republicans agree to support these corporate tax cuts, Obama can claim a legislative victory that will help Democrats neutralize their opponents in the upcoming elections.

The proposals also make it harder for Republicans to argue the Bush income tax cuts should be extended for the richest 3 percent of taxpayers, because small businesses need it. Obama's corporate tax cuts would appear to do the trick for small business.

The White House probably figures even if Republicans agree, nothing will come of it. Congress will be in session for only about two weeks between now and the midterm elections, so it's doubtful they'd be enacted in any event. But this could backfire if Republicans call Obama's bluff and demand the corporate tax cuts be put on a fast track and get signed into legislation before the midterms.

More troubling, Obama's whopping proposed corporate tax cuts help legitimize the supply-side dogma that the economy's biggest obstacle to growth is the cost of capital, rather than the plight of ordinary working people.

Reich: Robert Reich teaches public policy at the University of California Berkeley. Next week in his regular spot, commentator David Frum.

About the author

Robert Reich is chancellor's professor of public policy at the University of California, Berkeley. He has served in three national administrations, most recently as secretary of labor under President Bill Clinton.
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I agree with the spirit of this article. At the same time, I would like to say that I think as a country, we need to be investing heavily in thoughtful green energy products that can be manufactured in the US and sold in the US as well as other locales. If the Japanese car companies can come here and build car plants using American workers and still produce excellent cars at a good profit, then why can't American companies do the same thing. In my opinion what needs to happen right now is businesses need to stop going for the home-run product and be satisfied with the 2nd base hit. The govt. could help things substantially by cutting off all subsidies to the oil companies and instead subsidize the green energy industries that are keeping their manufacturing in the states.

Small businesses have a way of becoming big businesses if they have a chance. The American Recovery and Relief Act (ARRA) passed last year was written and passed so quickly that it didn't target small business properly the way that it should have. We could have jump started this economy (intention of the ARRA) much earlier had we targeted legislation funding to these types of interests, vice "shotgunning" money to (almost) untracable recipients. Industry for us over the next 5-10 yrs will be manufacturing items that we may currently not even know we need. This is all in pursuit of jobs, but until the American worker accepts lower wages, we'll never get those jobs back from overseas.

@Bill

Great general statement. However, the question you need to ask is whether the tax cuts actually aim at small business or large businesses. I propose that the cuts, along with much 'pro-business' policy lately, has been aimed at large business. Take the $250k tax cut mess. Small companies do NOT make $250k in net profits (that's AFTER investments and expenditures like payroll) yet we're willing to fight against incentives for them in order to try to preserve cuts that go towards large companies, which are the ones stockpiling money and currently making large profits.

Bring some items that will help SMALL companies and you'll see very few people argue against you. The key is 'small companies' as in "not part of the top 2%".

I agree with your writings and I am always left with the same thought. People and parties keep saying "Tax cuts" and the people say "We are paying to much in taxes". If you ever find a couple of extra minutes Is there a way to take three readings of "The People's income and taxes" from the growing years 50s to mid 60s. I kind a think those 15 years were the growing in the U.S.(Just after the wars and before we turned a little crazy.)
1.Take 3 income levels the top of the lower, mid of the middle and some where in the upper class range and figure the percent of income to taxs.
2. Minimun wage-on a scale is the minium wage today actualy higher that that of the 50s compaired to income?
3.percent of wages for health care?
4. percent of wages for Education?
You might even do a couple of large companies then and now. % of taxes to income? I guess what I would realy like to know is are we realy as bad of as some people say we are or have we just gotten too use to an easy life?
IF you ever figure this out please let me know. While I realy enjoy you comments on NPR, I am not an everyday lissioner.

I would like to amplify my earlier point.

Small business is the engine for job creation. Our negative balance of payments is forcing us to become a debtor nation. It is inevitable that we will decline as a world power if foreign powers continue to accumulate US dollars and which is to say that our debt load will increase to the foreign powers. History has taught us that
"He who has the gold makes the rules." Look at the fall of the British empire after world war 1.

While large companies may be sitting on mounds of cash, small businesses have had a challenging time accessing capital. Loans to small companies have virtually dried up during this recession.

By helping small manufacturing companies tax breaks, we can help them access needed capital to automate their plants. By automating some of our manufacturing plants, we can help them be more competitive against many of these foreign competitors that have taken market share away from this country and cost us jobs and a negative balance of payments.

Helping small manufacturers to compete effectively with foreign competition is a win for jobs and a win for our balance of payments.

I've had to disagree with your last few articles Prof. Reich, but I'm going to have to agree with you on this one. From the reports I hear, companies have money, they just don't know where to invest it to get a positive ROI.

Dr. Reich is right the corporate tax cut won't fix anything. First, corporations have plenty of money. Their real problems is they have nothing they believe will give them a return for the investment. If taxes are the tipping point then the investment is dubious.

The real problem is we do not know how to run an economy with low growth and mostly a service industry. Manufacturing and the goods producing industry are now no longer big enough or strong enough to drive the economy. In a service economy the scale advantage goes away since one can only have a few transactions per day. Second, many of us are recognizing the United States is giving away, or already has given away, its ability for self determination. This happened because to the increased debt load and the fact we don't make a lot of goods anymore. Hence, in the current economic climate and political games there is a real good question as to whether the United States is a good investment or an economy in decline.

There are no easy answers. Politics, Wall Street, Government as usual won't cut it. We need to understand: One can create and economy. One can destroy an economy. But, one can not buy an economy.

Really? Have things in the Washington sandbox gotten so hinky that we now have to trick the Republicans into behaving the way we'd like them to? Watch out, guys...in my experience, depending on which way the wind is blowing, the one who throws sand may just get it back in one's face.

Professor Reich proposes a false dichotomy of obstacles to the economy: the cost of capital, or "the plight of ordinary working people." A far bigger problem than either of these is the large costs that the government imposes on *labor*, and on doing business in general. Under a Congress or administration like this one, those costs are rising and in general tend to rise---and the uncertainty about them may even be worse for business than the costs themselves.

Robert makes so much sense. I wish Obama would ask him to join his team.

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