Monday, May 4, 2015

New Obama stimulus efforts won't counteract overall uncertainty

The timing may politically perfect, but serves only to ratchet up the uncertainty that confronts business on so many levels.

New Obama stimulus efforts won't counteract overall uncertainty

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As powerful as any president might be, he can’t sign an executive order to create eight million jobs and thus reverse the damage of a historic recession.

But an administration’s policies go a long way to providing certainty to the businesses that can do just that.

By that standard, President Obama’s administration deserves credit for enacting measures such as bank stress tests that reassured the world that the biggest U.S. banks weren’t on the brink of failure.

Out of necessity, stemming the financial crisis became the top priority for this administration. Then there was an $814 billion economic stimulus effort to jump-start the recession-weakened economy.

But other White House priorities, such as health-insurance changes and new financial regulations, coming during the economy’s recovery phase, have injected a big dose of uncertainty into the plans of business operators. How will their costs for providing health insurance change? What changes will banks make and how will that affect the fees they charge customers?

The other big unknown had been what would happen to President George W. Bush’s tax cuts.

In a speech in Cleveland on Wednesday, Obama clearly called for the retention of tax cuts for households making $250,000 and individuals making $200,000 and allowing tax cuts to expire for the wealthy - defined as those earning more than those amounts.

In a recession, the last thing you want to do is raise taxes and cut government spending - trillion-dollar deficit or not. When Washington has done so after previous downturns, the results have been disastrous.

But deficitoholics that we are in the United States, we have to admit we have a problem (I think we have) and then take deliberate, thoughtful steps to fix the nation’s finances (not even close).

So while I applaud the president for seeking to maintain the Bush tax cuts for hoi polloi and, perhaps, spur consumer spending, in this time of economic wooziness, I have to pan the timing. My problem is that this sudden push is 100 percent about politics, not their appropriateness.

Despite Obama’s protests to the contrary, these are not long-term moves. They are short-term feints to defend his Democratic Party.

That’s politics, you say.

But that’s a problem, I say, because it means business leaders will spend more time feeding their political interests than growing their businesses. Why spend on new equipment or hire employees when you can invest in new lawmakers who might have more business-friendly attitudes.

So Obama can wield a new stimulus plan (he won’t use that word) that would allow business to accelerate $200 billion worth of tax write-offs, permanently extend a tax credit for research-and-development spending that would cost $100 billion over 10 years, and dump $50 billion into infrastructure spending.

But like that horse at the watering hole, Corporate America isn’t necessarily thirsty. After all, there’s $1.8 trillion in cash sloshing around on its balance sheets - a historic high.

Look, maintaining tax cuts for the wealthy at a cost estimated at $700 billion over 10 years is indefensible, given the sad shape the country is in.

I’ve heard the argument that any tax hike on entrepreneurs who make more than that $200,000 threshold will mean they’ll drop out of the job-creation game until Washington becomes more friendly to business.

I don’t believe that. Most of the compulsive entrepreneurs I’ve interviewed over the years can’t help but create new companies and try to grow, grow, grow. They can’t resist trying to outflank the competition with some new idea, regardless of whether their credit cards are maxed out.

But too much uncertainty produces inertia, even for entrepreneurs.

These proposed tax breaks just won’t produce the millions of jobs that went away in the first place.

Inquirer Columnist
About this blog
Mike Armstrong blogs about Philadelphia corporations and business-related topics. Contact him at 215-854-2980. Reach Mike at marmstrong@phillynews.com.

Mike Armstrong Inquirer Columnist
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