Mixed Reaction To Obama's Business Tax-Break Plan Some think the proposal will be another Cash-for-Clunkers-style tax break that probably won't have much of a long-term impact. But others are more enthusiastic about the plan to allow U.S. companies to write off all investments through 2011.
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Mixed Reaction To Obama's Business Tax-Break Plan

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Mixed Reaction To Obama's Business Tax-Break Plan

Mixed Reaction To Obama's Business Tax-Break Plan

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This is MORNING EDITION from NPR News. I'm Linda Wertheimer.


And I'm Steve Inskeep.

President Obama is�calling for a new tax break for businesses. He says it will help boost the economy, which is struggling to gain traction right now. In a speech yesterday in Ohio, the president said all American companies should be allowed to write-off all investments they make through the year 2011.

President BARACK OBAMA: This will help small businesses upgrade their plants and equipment, and will encourage large corporations to get off the sidelines and start putting their profits to work in places like Cleveland and Toledo and�Dayton.

INSKEEP: That's the plan about which some businesses and economists are skeptical. Here's NPR's Chris Arnold.

(Soundbite of banging)

CHRIS ARNOLD: On the factory floor at Metal Works in Londonderry, New Hampshire, you can hear the economy trying to chug along. Machines are stamping out metal parts for everything from solar panels, to military computers, to medical devices.

Mr. FRED PIERCE (CEO, Metal Works): We call it stereo when we have more than one piece of equipment running, punching out parts.

ARNOLD: Fred Pierce is the owner and CEO. We've been checking in with him over the past couple of years. As the economy went into recession, Pierce had to layoff about 100 employees more than half his workforce. But he's started to hire people back over the past year, and he definitely does not have a problem with this latest tax cut proposal from the Obama administration.

Mr. PIERCE: We're always in favor of tax proposals that are going to help small businesses. So it's a good thing.

ARNOLD: But even with business doing better this month, Pierce says the workload has been erratic. And so it's hard to have enough confidence to invest a lot of money right now, or to hire back more people, even if that new tax break goes through.

Mr. PIERCE: October is still an unknown. Next year is definitely unknown.

ARNOLD: I got to thinking it's hard to decide to go out and spend a million dollars on a new piece of equipment if you don't know if the work's doing to be there in a month.

Mr. PIERCE: That's exactly right. You know, at the end of the day, right now, we don't need more equipment, we need more customers.

ARNOLD: Still, some businesses probably would buy some more equipment. When the government throws free money at people through a tax break, that can definitely work.

Last year, cash for clunkers enticed a lot of people to buy cars. Same thing with the First Time Homebuyer Tax Credit people bought more houses. But in both cases, sales then fell sharply after the tax break expired.

So that begs the question: Even if this tax credit did get some businesses to buy more equipment, would that really help the economy in the long run?

Mr. NARIMAN BEHRAVESH (Chief economist, HIS Global Insight): There is a risk, as there was with cash for clunkers, that, you know, they'll spend now, but then won't spend later.

ARNOLD: Nariman Behravesh is chief economist with the forecasting firm IHS Global Insight.

Mr. BEHRAVESH: You're pulling spending forward and then there's always the payback later on, as we're seeing right now, for example, in housing, which did well for a while and then it dropped.

ARNOLD: And so Behravesh is pretty underwhelmed by this latest tax-cut proposal.

Mr. BEHRAVESH: We're very, very skeptical that this will have much of an effect on the economy or in terms of job creation.

ARNOLD: Other economists, though, think that in the case of housing, the temporary stimulus did make a difference. They say it interrupted the free fall in the market, and things would have been much worse without it. And some are more enthusiastic about this latest business tax-break proposal.

Professor GLEN HUBBARD (Economy, Columbia University): I think it could provide some real stimulus.

ARNOLD: Glen Hubbard is an economist at Columbia University. He's definitely not a cheerleader for Democrats. He was the top economic adviser to President George W. Bush, and he says tax incentives like this can help get more business moving.

Mr. HUBBARD: You're using it to jump-start the economy. If the president wants to go this route, he has done the nation a favor by pivoting the discussion toward business investment and away from consumption.

ARNOLD: Still, there's another big tax issue facing businesses. Those so-called Bush tax cuts that are due to expire at the end of the year.

Back at his factory, Fred Pierce says if those do expire, that would raise taxes for many small businesses like his.

Mr. PIERCE: It basically is going to raise our tax rate by 13 percent so in a worldwide economy where we're competing with China and Mexico, we're going to be less competitive next year than we were this year. Our gross profit is going to decline by 13 percent that's a much bigger deal.

ARNOLD: So basically, Pierce feels like the government is offering him a tax break with one hand, but is about to raise his taxes sharply with the other.

Chris Arnold, NPR News, Boston.

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