Economic Stimulus with Corporate Welfare in Mind
Gandalf Grey
October 27, 2001
An Economic Stimulus Bill With Corporations in Mind
By GRETCHEN MORGENSON
NewsAnalysis
Late last winter, when President Bush was shaping his $1.35 trillion tax
cut, corporate lobbyists were told to wait, their turn would come. And now,
their turn is here.
The $100 billion tax-cut bill narrowly passed by the House this week and
sent to the Senate has been lauded by the White House as a broad stimulus
package that will pull the United States economy out of a stall made worse
by the terrorist attacks. But it also allows the Bush administration to
deliver on its promise to corporate lobbyists.
Just 30 percent of the proposed tax relief would go to individuals, with the
rest helping corporations, including large, prosperous ones like I.B.M.
(news/quote) and General Electric (news/quote), which have done well even in
the economic downturn. And though one of the bill's costliest provisions is
intended to produce a rebound in capital spending by businesses, such a
recovery is far from certain.
Charles Gabriel, the senior Washington analyst at Prudential Securities,
said it was no surprise that the House bill heaped the biggest rewards on
corporations. "It's political payback of sorts," he said. "To get his tax
cut through earlier this year, Bush had to sedate the K street lobbyists,
telling them, `Don't worry, there will be another bill coming through.' Now
you've got another green light for a tax bill, and there's a presumption
that it will be skewed toward corporate tax cuts."
Corporate pleading for tax cuts is nothing new, of course, particularly if a
bill is viewed as the last gravy train pulling out of the Washington station
for a while. What emerges from the Senate is almost certain to be a less
generous proposal. Still, the administration's argument that the bill is
broad-based is weakened when so much goes to a handful of wealthy
corporations.
Furthermore, the effort to stimulate the economy could be belied by the
immense pressure the bill would put on state governments - which by law must
maintain balanced budgets. Under one of the bill's major provisions,
concerning the depreciation of equipment, states would experience
significant declines in tax revenues even as they face surging unemployment
and other costs.
Conservatives say giving tax breaks to business is not a payoff to campaign
contributors, but a vital and efficient way of stimulating new investment,
protecting jobs and shoring up corporate earnings and stock prices.
"You can't restore a dysfunctional economy without helping business
stabilize and recover," said Representative Bill Thomas of California, the
Republican chairman of the House Ways and Means Committee and the main
author of the bill.
"The creative range of tax adjustments in this bill will free up money that
businesses would otherwise have to send to the I.R.S. so they can channel it
back into the economy through salaries, training and investments like
equipment instead."
The depreciation provision - at a cost of $39 billion in the first year -
would allow companies to accelerate the amount they write off against income
for new equipment bought in the next three years. The allowance for such
write-offs, which reduce corporate taxes, has been 15 percent. Under the
bill, it would rise to 30 percent in the year of purchase.
The idea of accelerating depreciation was backed by the National Association
of Manufacturers, a lobbying group. Still, its inclusion in the bill
surprised some analysts. Tom Gallagher, a political economist at
International Strategy and Investment, said: "This has been kicked around in
the fairly small tax policy community. Nobody really thought it had much of
a chance until now."
Proponents of the plan, many of whom are technology companies that either
hope to sell more equipment because of the change or want to pay less for
the gear they need to buy, say that it will encourage companies to increase
capital spending, which has plummeted this year.
Chris Edwards, director of fiscal policy at the Cato Institute, argued that
the new economy requires a new depreciation schedule. "Computers are written
off over five years, but they often become obsolete much earlier than that,"
he said. Allowing a 30 percent write-off in the first year lowers costs and
raises returns on new investment. "The core of the economic slowdown has
been business investment," he said, "so it makes a lot of sense to aim a lot
of tax stimulus at investment."
But some analysts question whether such a stimulus will have the desired
effect given that inventories of equipment remain high and manufacturers
still have excess capacity - idle plants. Jack Ciesielski, an accounting
authority and editor of The Analyst's Accounting Observer, said: "The
increase in depreciation would stimulate capital spending. But the problem
is, if the consumer's not buying, what's more capital spending going to
produce?"
The three-year term of the accelerated write-off plan mystifies some tax
specialists. Robert Greenstein, executive director of the Center on Budget
and Policy Priorities, a liberal research group in Washington, pointed out
that a one-year plan would provide a much more immediate economic boost,
because companies would rush to take advantage of it. Under the current
proposal, the urgency to invest would not occur until 2003 or 2004,
presumably when the economy is healthy again.
The effect of the increased depreciation on states is what really worries
Mr. Greenstein, who noted that most states follow federal rules on
write-offs to calculate their own corporate income taxes. By his reckoning,
44 states and the District of Columbia would lose an average $5 billion each
in corporate and individual income tax revenues in each of the three years
the plan is in effect.
"Since they have to balance their budgets in recession, nearly every dollar
that states lose as a result of this federal tax cut would have to be made
up as either tax increases or program cuts," Mr. Greenstein said. "If a
depreciation is in the package, it ought to include an offsetting relief to
the states."
Given the slim margin with which the House bill passed, the aggressive
depreciation plan could be toned down in the Senate. Max Baucus, the Montana
Democrat who is chairman of the Senate Finance and Appropriations Committee,
has proposed giving companies a bonus depreciation of 10 percent for just
one year. Senator Baucus's bill would cost $70 billion in the first year.
Perhaps the biggest boon for businesses would be the repeal of the
alternative minimum tax on companies since 1986 and refunds to cover what
the companies have paid in those taxes during that time. All in all, the
House bill would dispense about $25 billion in tax rebates to large
corporations, one-quarter of the bill's first-year cost.
According to Citizens for Tax Justice, an advocacy group that is critical of
corporate tax breaks, I.B.M.'s rebate check would top $1.4 billion, while
General Electric would receive $671 million. Last week, I.B.M. said it could
meet investors expectations for fourth-quarter results. G.E. earned $9.8
billion in the first nine months of the year, a 6.8 percent increase from
the comparable period in 2000.
Sending $25 billion in checks to profitable corporations may not pass the
Senate. But the repeal of the minimum tax, which became law in 1986 to make
sure that profitable corporations pay some taxes regardless of the breaks
they receive, could survive. That is because in recent years, while more
individuals, even those with modest incomes, have been skewered by the
minimum tax, corporations have found ways to pay less of the tax, according
to Robert McIntyre, director of Citizens for Tax Justice. In 1998, for
example, corporations paid $3.3 billion under the law, down from $8.1
billion in 1990. Individuals, on the other hand, paid $5 billion in 1998, up
from $830 million in 1990.
The number of taxpayers qualifying for the minimum tax numbered 132,000 in
1990, and Mr. McIntyre estimates that 2.3 million people will pay the tax
this year. The surge makes a repeal expensive, of course.
"Repealing the corporate A.M.T. and eliminating taxes on some of our
wealthiest corporations would be both unfair and grossly insulting to
America's hardworking taxpaying families," Mr. McIntyre said.
Another aspect of the House bill that aids a small but powerful group of
large multinational corporations is the plan to make a temporary tax break
for companies with financial operations permanent. The tax break lets
companies shield income earned in those businesses from taxes by shifting
money to offshore subsidiaries.
Last year, the tax break, known as the exception for active financing
income, cost the government $3.8 billion in taxes. If it became permanent,
it would cost $21 billion over the next decade, Mr. McIntyre said. It works
this way: companies that lend money to customers buying their goods - G.E.
or the Ford Motor (news/quote) Credit Corporation, for example - can offset
the income tax they owe on the interest payments they receive by putting
enough money in an offshore entity to generate the same amount of income
tax-free.
One lobbyist, who spoke about this tax break on the condition of anonymity,
said, "It wasn't industry specific, but it certainly was big multinationals
that would benefit, while domestic companies would not."
Even though the House bill has White House support, lawmakers in the Senate
are sure to examine whether these proposals will provide the stimulus that
the economy needs, or if they are a way for corporations to get their
tax-cut wishes in the name of economic growth.
"We're seeing very creative efforts to take a longstanding agenda of
corporate tax cuts that had never been presented before as stimulus measures
and dress them up as though they somehow had significant stimulative
effects," said Mr. Greenstein of the Center on Budget and Policy Priorites.
"And most of them don't."
Copyright 2001 The New York Times Company
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Law. In accordance with Title 17 U.S.C. Section 107
"We will not walk in fear. We're Americans. Americans don't walk in fear."
Colin Powell, Press Conference, September 13, 2001
No Party
On Sat, 27 Oct 2001 22:32:06 -0700, "Gandalf Grey"
<ganda...@infectedmail.com> wrote:
>The New York Times
>
>October 27, 2001
>An Economic Stimulus Bill With Corporations in Mind
>By GRETCHEN MORGENSON
>
>NewsAnalysis
>
>Late last winter, when President Bush was shaping his $1.35 trillion tax
>cut, corporate lobbyists were told to wait, their turn would come. And now,
>their turn is here.
<<rest of article snipped to save bandwidth>>
colleen
: It's good to see the class warfare pundits are alive and well!!!
It's actually very disgusting to see that the republicans are using the
events of 9/11 to push through their foul class warfare agenda. Between
1990 and 2000 corporate executive salaries rose by 571% (and even more if
the CEO's laid off 1,000 or more employees) while the worker'spay rose by
only 37% (with inflation at 32%). During the greatest economic recovery
the poor got poorer and those in the middle are slightly worse off than
when the decade began.
This next decade looks to be far, far worse so tell the GOP spinmeisters
that they need to come up with a better response than 'class warfare',
'poor misunderstood rich people' and 'we provide jobs'. Particularly
during times of massive layoffs 'we provide jobs' simply does not resonate
effectively.
: On Sat, 27 Oct 2001 22:32:06 -0700, "Gandalf Grey"
Martin McPhillips
>
> No Party (nop...@mindspring.com) wrote:
> : It's good to see the class warfare pundits are alive and well!!!
>
> It's actually very disgusting to see that the republicans are using the
> events of 9/11 to push through their foul class warfare agenda. Between
> 1990 and 2000 corporate executive salaries rose by 571% (and even more if
> the CEO's laid off 1,000 or more employees) while the worker'spay rose by
> only 37% (with inflation at 32%). During the greatest economic recovery
> the poor got poorer and those in the middle are slightly worse off than
> when the decade began.
> This next decade looks to be far, far worse so tell the GOP spinmeisters
> that they need to come up with a better response than 'class warfare',
> 'poor misunderstood rich people' and 'we provide jobs'. Particularly
> during times of massive layoffs 'we provide jobs' simply does not resonate
> effectively.
Without either stipulating to or disputing your numbers, the period
you describe is generally known as the "Clinton era." (Not that I
give him credit for the economic boom, but traditionally the
president at the time takes the credit whether he did anything
of substance or not.)
Now, how exactly does the salary of CEOs constitute "class warfare?"
How did the "poor get poorer" when they were routinely reported as
doing better?
How did the "middle" become "slightly worse off" when your own
numbers say that their real income increased by 5%?
Finally, did you know that the "poor," the "middle," the "upper
middle," and the "rich" are not static categories? In other words,
they are not categories (usually divided up into 5 categories
or quintiles) that are routinely lifelong stations for their
current occupants? As people progress through the productive
years of their life they tend to jump, for instance, from KFC
to the Post Office to Computer programmer to Management to
owning a home, etc., sometimes before they're even 30.
Senator Palpatine
> No Party (nop...@mindspring.com) wrote:
> : It's good to see the class warfare pundits are alive and well!!!
>
> It's actually very disgusting to see that the republicans are using the
> events of 9/11 to push through their foul class warfare agenda. Between
> 1990 and 2000 corporate executive salaries rose by 571% (and even more if
> the CEO's laid off 1,000 or more employees)
and who was in office when that happened? Your liberal in chief Clinton and
his socialist wife.
while the worker'spay rose by
> only 37% (with inflation at 32%). During the greatest economic recovery
> the poor got poorer and those in the middle are slightly worse off than
> when the decade began.
> This next decade looks to be far, far worse so tell the GOP spinmeisters
> that they need to come up with a better response than 'class warfare',
> 'poor misunderstood rich people' and 'we provide jobs'. Particularly
> during times of massive layoffs 'we provide jobs' simply does not resonate
> effectively.
>
well the economy went south when clinton was in office. Bush inherited it.
You liberals are the ones that HATE HATE HATE anyone that is well off.
fiend999
darth_s...@my-deja.com (Senator Palpatine) wrote:
> You liberals are the ones that HATE HATE HATE anyone that is well off.
I keep hearing people say things like that. Where, then does all the money to
back liberal politicians come from? Well off conservatives who just want to be
nice? There are no well off liberals? Don't confuse true hard-core socialists
or communists who think everyone should be economically equal with a regular
"Liberal".
--
No Party
wrote:
>No Party (nop...@mindspring.com) wrote:
>: It's good to see the class warfare pundits are alive and well!!!
>
>It's actually very disgusting to see that the republicans are using the
>events of 9/11 to push through their foul class warfare agenda. Between
>1990 and 2000 corporate executive salaries rose by 571% (and even more if
>the CEO's laid off 1,000 or more employees) while the worker'spay rose by
>only 37% (with inflation at 32%). During the greatest economic recovery
>the poor got poorer and those in the middle are slightly worse off than
>when the decade began.
>This next decade looks to be far, far worse so tell the GOP spinmeisters
>that they need to come up with a better response than 'class warfare',
>'poor misunderstood rich people' and 'we provide jobs'. Particularly
>during times of massive layoffs 'we provide jobs' simply does not resonate
>effectively.
>
I think you are proving my point quite well here colleen. Only a
class warfare monger would turn this around to be a Republican
problem. Just what is the repub's 'foul class warfare agenda' anyway?
My personal income increased over 300% during the past 4 years and I
am not a corporate executive - just a regular working flunky. This
middle class American did quite well.
What are you proposing here, the government should control corporate
salaries?
Why don't you quit your own job in protest over this.
By the way, your inflation figures are wrong. It was more like 0.04%.
Of course, you know your other figures are wrong as well.
Senator Palpatine
It's ok for Gore(has stock in oil) to be a rich man because he TALKS the talk
about how bad rich conservatives are. How much money has he ever given away.
And the Clintons...well their in a league of their own!