President Barack Obama, in one of his most dramatic gestures to business, will propose that companies be allowed to write off 100% of their new investment in plant and equipment through 2011, a plan that White House economists say would cut business taxes by nearly $200 billion over two years.
The proposal, to be laid out Wednesday in a speech in Cleveland, tops a raft of announcements, from a proposed expansion of the research and experimentation tax credit to $50 billion in additional spending on roads, railways and runways. But unlike those two ideas, both familiar from Mr. Obama’s 2008 campaign, the investment incentive would embrace a long-held wish by conservative economists that had never won support from either Republican or Democratic administrations.
“Temporary investment incentives like this can have big effects because they really pull investment forward,” said R. Glenn Hubbard, dean of the Columbia University School of Business and a former chairman of the Council of Economic Advisers under President George W. Bush. “This could have a big stimulative effect.”
While the stereotype is that conservatives these days can’t find a tax cut they’re not in favor of and care about business far more than the little guy, this particular conservative would like to express a little skepticism about this idea. If the program is successful in pulling in investments that would otherwise be made in 2012 and beyond, then all we get out of this is a slowdown in new plant and equipment investments after 2011. Cash for Clunkers got us a nasty auto-sales slowdown after the rebates were gone, and the home buying credit similarly emptied out the sales pipeline and produced the worst July home sales numbers in more than a decade. Do we really need to do the same to the companies who build plants and make industrial equipment?
I can’t help worrying that this would prove to be another flash-in-the-pan incentive which only succeeded in draining the sales pipeline for following months.