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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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