President Obama desperately wants American businesses to play ball. His latest economic game plan is aimed largely at tapping into nearly $2 trillion reportedly parked in corporate coffers.
But when the president calls on executives to get in the game, they immediately picture Lucy offering to hold the football for Charlie Brown — with themselves as the round-headed fall guy. Business leaders do not trust Barack Obama. He has only himself to blame.
Since taking office, the president has condemned “fat cat bankers on Wall Street,” blamed “speculators” for driving Chrysler to bankruptcy, and coerced BP to hand over $20 billion without first pausing to determine whether that figure bore any relation to the magnitude of the damages from the Gulf oil spill.
Yet the president’s much-hyped speech in Cleveland yesterday highlighted three proposals, all of which require a considerable degree of faith from the heads of large enterprises. Apparently no one ever told Obama that if you want the dogs to come running when you whistle, it is best not to beat them with a stick every time they get within reach.
His first proposal is to overhaul transportation infrastructure spending. The most publicized aspect of the program is a $50 billion up-front outlay. According to the White House, the new spending will help create jobs at a time when the overall unemployment rate remains high and construction jobs are particularly scarce. The construction industry has lost 940,000 jobs since Obama took office in January 2009, Bloomberg reported.
But if $800 billion in federal spending did not restart the economy in 2009 and 2010, it’s unclear how $50 billion will do the trick in 2011. It is also doubtful that the money would be spent quickly enough to have any rapid impact. In fact, of the $38.6 billion that the government set aside for the Transportation Department in the economic stimulus package approved last year, only $18.5 billion has actually been paid out so far.
The more meaningful part of Obama’s transportation proposal is his plan to create a new “infrastructure bank.” The bank would be government-run but would rely on private investment, in addition to tax dollars, to fund transportation projects. A panel would judge the merits of projects, which Obama claims would dilute the impact of political considerations on funding decisions.
A White House statement said the bank “would leverage private and state and local capital to invest in projects that are most critical to our economic progress.” But the program depends on private investors being willing to work with the U.S. government, which has not been doing a very good job of establishing a track record as a friendly business partner.
The proposal also would undercut the power of congressional chieftains whose committees currently ladle out the pork. Good luck getting Congress to sign on to that idea.
Obama’s second major proposal is to allow companies to take immediate tax deductions in 2010 and 2011 for capital investments, including equipment purchases. Ordinarily, large corporations must slowly claim their tax benefits over the course of several years as the equipment depreciates. Those deductions do little good if they are postponed to years when the company has no profits to offset.
Stimulus measures enacted at the end of the Bush administration allowed large businesses to claim half of their deductions immediately in 2008 and 2009, and most small businesses, like Palisades Hudson, already can claim all of their deductions in the year the equipment is purchased. A White House handout asserted that the measure would “put nearly $200 billion in the hands of businesses over the next two years—helping companies that make new investments in the United States at a time they need it most.” Most of that cost would be recouped in later years through reduced depreciation claims.
The third proposal is to revive and expand a tax credit for research and development. The proposed 20 percent increase in the credit “would devote about $100 billion over the next 10 years to leverage additional R&D investment,” according to the White House. The credit, known as the Research and Experimentation Tax Credit, was created in 1981. Since then it has been extended 13 times, with numerous lapses. Obama’s plan would make the credit permanent.
But what the president offers with one hand, he tends to snatch back with the other. Every CEO is keenly aware of the federal government’s vast funding gap, as well as the unresolved financial needs of entitlements like Social Security and Medicare, and dependencies like AIG, Fannie Mae and Freddie Mac.
In the very speech in which he offered his inducements yesterday, the president railed against Republican proposals to “cut more taxes for millionaires and cut more rules for corporations.” Translation: You may pay me a little less right now, if you do what I want, but you are going to pay me eventually, regardless.
It was a good applause line in front of the president’s hand-picked audience in Cleveland. Unfortunately, that audience is not in a position to do much hiring. In the board rooms and executive offices where the go or no-go decisions are going to be made, we can safely assume nobody was clapping.
This is a president who likes to play by his own rules, and who usually wins. His skimpy political and legislative background could never have carried him to the White House otherwise. But he is going to have a lot of trouble getting business decision-makers to join his game.
A person’s track record means something. In the case of President Obama, it means you can’t trust him to let you really kick that football, no matter how persuasively he invites you to try.
Posted by Larry M. Elkin, CPA, CFP®
President Obama desperately wants American businesses to play ball. His latest economic game plan is aimed largely at tapping into nearly $2 trillion reportedly parked in corporate coffers.
But when the president calls on executives to get in the game, they immediately picture Lucy offering to hold the football for Charlie Brown — with themselves as the round-headed fall guy. Business leaders do not trust Barack Obama. He has only himself to blame.
Since taking office, the president has condemned “fat cat bankers on Wall Street,” blamed “speculators” for driving Chrysler to bankruptcy, and coerced BP to hand over $20 billion without first pausing to determine whether that figure bore any relation to the magnitude of the damages from the Gulf oil spill.
Yet the president’s much-hyped speech in Cleveland yesterday highlighted three proposals, all of which require a considerable degree of faith from the heads of large enterprises. Apparently no one ever told Obama that if you want the dogs to come running when you whistle, it is best not to beat them with a stick every time they get within reach.
His first proposal is to overhaul transportation infrastructure spending. The most publicized aspect of the program is a $50 billion up-front outlay. According to the White House, the new spending will help create jobs at a time when the overall unemployment rate remains high and construction jobs are particularly scarce. The construction industry has lost 940,000 jobs since Obama took office in January 2009, Bloomberg reported.
But if $800 billion in federal spending did not restart the economy in 2009 and 2010, it’s unclear how $50 billion will do the trick in 2011. It is also doubtful that the money would be spent quickly enough to have any rapid impact. In fact, of the $38.6 billion that the government set aside for the Transportation Department in the economic stimulus package approved last year, only $18.5 billion has actually been paid out so far.
The more meaningful part of Obama’s transportation proposal is his plan to create a new “infrastructure bank.” The bank would be government-run but would rely on private investment, in addition to tax dollars, to fund transportation projects. A panel would judge the merits of projects, which Obama claims would dilute the impact of political considerations on funding decisions.
A White House statement said the bank “would leverage private and state and local capital to invest in projects that are most critical to our economic progress.” But the program depends on private investors being willing to work with the U.S. government, which has not been doing a very good job of establishing a track record as a friendly business partner.
The proposal also would undercut the power of congressional chieftains whose committees currently ladle out the pork. Good luck getting Congress to sign on to that idea.
Obama’s second major proposal is to allow companies to take immediate tax deductions in 2010 and 2011 for capital investments, including equipment purchases. Ordinarily, large corporations must slowly claim their tax benefits over the course of several years as the equipment depreciates. Those deductions do little good if they are postponed to years when the company has no profits to offset.
Stimulus measures enacted at the end of the Bush administration allowed large businesses to claim half of their deductions immediately in 2008 and 2009, and most small businesses, like Palisades Hudson, already can claim all of their deductions in the year the equipment is purchased. A White House handout asserted that the measure would “put nearly $200 billion in the hands of businesses over the next two years—helping companies that make new investments in the United States at a time they need it most.” Most of that cost would be recouped in later years through reduced depreciation claims.
The third proposal is to revive and expand a tax credit for research and development. The proposed 20 percent increase in the credit “would devote about $100 billion over the next 10 years to leverage additional R&D investment,” according to the White House. The credit, known as the Research and Experimentation Tax Credit, was created in 1981. Since then it has been extended 13 times, with numerous lapses. Obama’s plan would make the credit permanent.
But what the president offers with one hand, he tends to snatch back with the other. Every CEO is keenly aware of the federal government’s vast funding gap, as well as the unresolved financial needs of entitlements like Social Security and Medicare, and dependencies like AIG, Fannie Mae and Freddie Mac.
In the very speech in which he offered his inducements yesterday, the president railed against Republican proposals to “cut more taxes for millionaires and cut more rules for corporations.” Translation: You may pay me a little less right now, if you do what I want, but you are going to pay me eventually, regardless.
It was a good applause line in front of the president’s hand-picked audience in Cleveland. Unfortunately, that audience is not in a position to do much hiring. In the board rooms and executive offices where the go or no-go decisions are going to be made, we can safely assume nobody was clapping.
This is a president who likes to play by his own rules, and who usually wins. His skimpy political and legislative background could never have carried him to the White House otherwise. But he is going to have a lot of trouble getting business decision-makers to join his game.
A person’s track record means something. In the case of President Obama, it means you can’t trust him to let you really kick that football, no matter how persuasively he invites you to try.
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