NCPA - National Center for Policy Analysis

Businesses See Benefits of Tax Break as Limited

September 10, 2010

Executives said the Obama administration's proposed new tax breaks might accelerate some investment plans.  But they also said the move would do little to boost demand longer term for companies suffering from overcapacity, according to the Wall Street Journal.

  • The government hopes to spur business spending with a proposal to allow companies to write off 100 percent of new investments in plants and equipment in the first year, rather than over 3 years to 20 years.
  • The tax break would extend through 2011.
  • Business executives said Tuesday that the measure might deliver a temporary lift to business spending, but several said a more enduring way to spur demand would be to extend the Bush administration income tax cuts for higher earners.
  • Some also called for more permanent changes to corporate tax rules.

Many executives compared the speeded-up tax deduction to earlier Obama tax breaks for buyers of cars and houses, which stimulated a rush of buying that was followed by a big drop in sales once the incentives ended, says the Journal.

  • Ron DeFeo, chief executive of Terex Corp., a maker of cranes, other construction equipment and rock-crushing machines, said that a short-lived burst of demand created by temporary incentives could lead to more instability in the economy.
  • "You don't change fundamental demand" with such temporary tax incentives, Mr. DeFeo said.
  • He argued for a permanent cut in corporate tax rates.

Mr. Obama has also proposed a permanent extension of an expanded research and experimentation tax credit that now must be renewed annually.

Source:  Dana Mattioli and James R. Hagerty, "Businesses See Benefits of Tax Break as Limited," Wall Street Journal, September 8, 2010.

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