President Obama has not yet formally unveiled his plans for stirring up the sleeping job market through business tax breaks and infrastructure spending, but his ideas are already provoking skepticism.
With only two months to go before the election, the Obama administration is under considerable pressure for its handling of the economy. While private sector jobs have grown modestly since Obama took office, they havent come anywhere close to making up for the estimated 8.4 million jobs lost in the Great Recession, and the unemployment rate just ticked upward last Friday to 9.6 percent.
Against that backdrop, Obama is scheduled to propose a set of tax incentives on Wednesday to encourage more businesses to hire, including a permanent extension of the research and development tax credit that expired at the end of last year, costing $100 billion over 10 years (see Obama Expected to Unveil Business Tax Cuts). In addition, Obama is anticipated to propose that companies gain the ability to deduct 100 percent of their investments in plant and equipment through 2011. You might call that mega-bonus depreciation. The proposal is expected to cost the Treasury nearly $200 billion over two years, but only $30 billion in the long term.
On top of that, the President is supposed to propose infrastructure spending to the tune of $50 billion on roads, railroads and airports. For these initiatives, the White House is reluctant to use the term stimulus, which has become a dirty word in Washington, given the disappointing impact to date of the stimulus checks and other forms of booster spending that have been tried in recent years. But stimulus it is, or is intended to be. The main question is whether it will work, or if it can even pass in Congress.
One of the main problems confronting such proposals is the legislative calendar. When Congress gets back to work next week, its expected to take up the Small Business Jobs Act, which Obama has relentlessly hammered away at Republicans for opposing before Congress departed for the August recess. The bill is supposed to provide $12 billion in tax breaks for small businesses and their investors, along with a $30 billion lending fund for small businesses that have experienced trouble accessing bank loans and credit.
The dispute over the bill essentially came down to how many amendments the GOP would be permitted to introduce in the Senate, and hopefully by now they have that matter settled with Senate Majority Leader Harry Reid, D-Nev. If not, we can expect to hear more charges flying back and forth between the two camps.
Assuming the small business bill does pass, Congress will still need to pass 12 annual spending bills for the 2011 fiscal year. And theres the not inconsiderable matter of what to do about extending the Bush tax cuts, which are due to expire at the end of the year.
Democrats are under pressure from Republicans, and from some on their own side of the aisle, to extend the tax cuts even for those in the tippy-top income brackets, at least for another year or two. The two sides may be able to compromise on extending the tax cuts only for those making less than $1 million, as opposed to those earning less than $250,000, but compromise seems to be a rare commodity these days in the Capitol.
Aside from those pressures, there is of course the midterm election, which is shaping up to be a referendum on the performance of President Obama, even though he isnt officially on the ballot. According to all the polls and prognosticators, Democrats are expected to lose big-time, and whether or not they lose control of the House and the Senate too is seemingly the only outcome that hasnt yet been pre-ordained.
Not surprisingly, then, lawmakers are eager to hit the campaign trail and either defend the seats theyve got or capture the seats they dont. The chances of passing a whole new set of tax proposals look pretty slim in such an environment, especially if they can make one party look good at the expense of the other. But then again, this may be the last chance for Democrats to get anything passed for a long time. If they dont seize the opportunity now, they may lose their best shot at demonstrating that they still have a few halfway-decent ideas left for revving up the stalled economy, even though the ideas have been tried already in a more limited form and are not likely to generate a whole lot of excitement among most voters.
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