Will business tax breaks lift the economy?
TEXT OF STORY
Kai Ryssdal: Ever mindful of that, the White House is getting ready to announce a whole bunch of new proposals it hopes will finally kick the economy into high gear. In particular, the administration wants to get businesses to grow, and in the process, create more jobs. Obviously, finding what could add up to another $350 billion is going to need Congressional approval. There wouldd be new spending on roads and bridges and runways. The research and development tax credit would be juiced up. Another proposal on the table is a big tax break for businesses that invest in plants and new equipment.
From the Entrepreneurship Desk at Oregon Public Broadcasting, Mitchell Hartman walks us through how that might work.
Mitchell Hartman: The proposal would encourage businesses to invest in their facilities, or put in new equipment. Potentially, that could cover anything from building renovations and state-of-the-art machinery, to better computers or new office furniture.
Barbara Weltman: These kinds of investments would be able to be written off entirely through the end of 2011.
Small-business lawyer and tax adviser Barbara Weltman says a business could trim its tax bill for the entire cost right away.
Weltman: It does free a business from having to keep these records and take the write-offs over a long period of time even though they may pay for it right upfront.
Ordinarily, businesses have to wait 20, 30 years. Sometimes they don’t survive that long, or don’t have enough profits in the short run to even make it worth it.
To see how the tax break could play out, I called Chandra Brown. She’s a VP at Oregon Ironworks, which has 400 employees and has actually been expanding in recent years.
Chandra Brown: We make streetcars and boats and bridges and aerospace equipment.
The company’s got 13 new streetcars on order from Portland and Tuscon — at $3.5 million a pop. And they’re putting in a new facility to road-test them before delivery.
Brown: We are in the process of building the test track as we speak. It would be millions of dollars that we’re investing in that — certainly over $2 million.
Which could be deducted right away from this year and next year’s tax bills, and ploughed back into the business. Brown says that could lead to more expansion, including more hiring, in the next few years.
But not all companies would put the tax savings into more jobs, says Martin Bailey at the Brookings Institution.
Martin Bailey: Well, the risk is that more equipment just means more productivity and not more hiring.
Critics will point out that as much as the tax break proposal might help healthy businesses that are already in expansion mode, it’s not likely to generate more spending by consumers, and that’s ultimately what many businesses need to grow.
I’m Mitchell Hartman for Marketplace.
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