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Reich: Corporate tax cuts not the answer
Robert Reich
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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.
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Dr. Reich makes a good case that lack of demand is the reason for low rates of business investment (the recent increases appear large simply because the base was so low). But Mr. Weissman's point is valid and deserves amplification. When businesses invest in capital goods, and engineering and training services, to improve productivity, jobs are created in the firms that supply productivity enhancements. These goods and services are generally more labor-intensive than consumer goods, because the volumes are low and the degree of customization is high; for the same reasons, the skills required are typically higher. In short, the increase in productivity in one industry displaces some of its workers, but creates employment demand in other industries, for fewer, but higher-value jobs. Certainly, we face competition in these markets from Germany, Japan and others, but we can be more competitive than in consumer goods production, thanks to well-known market distortions in China.
By the way, economists seem to over-use the term 'automation'. It is only one way among many of increasing productivity; and is generally only cost-effective at rather high production volumes. Nor is it a new thing; it has been around since at least the Jacquard loom.
Dr. Reich misses the mark. Yes automation will replace jobs. But those jobs will be in China or any of the other foreign countries that we have outsourced our manufacturing jobs. How else can the US become competitive with the rest of the world and bring down our balance of payments while creating jobs at home.
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