Progressive Breakfast: Tax Cut Redux?

Progressive Breakfast is the morning roundup of what progressive movement members need to know to start the day.

Obama May Expand Tax Cut Piece of Econ Plan

W. Post: [1] "Obama officials are advocating that Congress direct about $300 billion of the stimulus package, or about 40 percent, toward tax breaks. [1] Under these provisions, most workers would get a $500 payroll tax credit, as Obama advocated on the campaign trail, and many businesses would receive incentives to create jobs and make equipment purchases more affordable. Along with their potential for short-term impact, the business measures are intended to entice Republicans to vote for the package; most of the provisions received strong GOP support when instituted as temporary measures in 2002."

CONTRAST with our $900B Main Street Recovery Program [2], endorsed by more than 200 economists, labor leaders and progressive organizations:

Middle-class tax cut: $145B (16%)

Infrastructure (inc. green investment, R&D, education and health care): $490B (54%)

Unemployment and anti-poverty aid: $140B (16%)

State government aid: $125B (14%)

QUESTION: Will more in tax cuts mean an unbalanced package with insufficient investment in critical areas?

The higher tax cut number comes from added business provisions. WSJ carried the Obama argument: [3]

...a key provision would allow companies to write off huge losses incurred last year, as well as any losses from 2009, to retroactively reduce tax bills dating back five years. Obama aides note that businesses would have been able to claim most of the tax write-offs on future tax returns, and the proposal simply accelerates those write-offs to make them available in the current tax season, when a lack of available credit is leaving many companies short of cash.

A second provision would entice firms to plow that money back into new investment. The write-offs would be retroactive to expenditures made as of Jan. 1, 2009, to ensure that companies don't sit on their money until after Congress passes the measure.

Another element would offer a one-year tax credit for companies that make new hires or forgo layoffs, which could be worth $40 billion to $50 billion. And the Obama plan also would allow small businesses to write off a broad range expenditures worth up to $250,000 in 2009 and 2010. Currently, the limit is $175,000.

Politico on the political argument: [4] "Obama strategists say he wants to get 80 or more votes in the 100-member Senate, and the emphasis on tax cuts is a way to defuse conservative criticism and enlist Republican support."

CAF's David Sirota criticizes the economic argument [5], citing EPI and Republican economist Mark Zandi's conclusions that public investment stimulates better than tax cuts, particularly business tax cuts.

And Sirota questions the political argument: [5] "are we really expected to believe that under these circumstances, a new president can't use pressure to get 3 or 4 Republican senators to back a robustly progressive spending package and that instead, he has to substantially weaken that package?"

Tim Duy of Economist's View worries of imbalance: [6]

...40% of the total is massive tax relief nonetheless. To think that many of us were voting for change…looks like we are getting more of the same.

To be fair, what the Obama team is likely quickly realizing is that while talk of infrastructure spending is great, actual implementation is slow – there are not enough shovel ready projects. Some, yes, but not enough to fill the gap the Administration is trying to fill. Other initiatives, while, worthy, have a similar problem. Fostering productivity enhancing innovations, such as education and green energy, are long-fuse policies – they take time to work. For instance, when I think about education, I think about what is necessary to do for the kindergartner today so they will develop the human capital for the workforce 15 years from now. That is a long time horizon. Too much time for an incoming Administration that has promised 3 million jobs. Hence, tax cuts are necessary to move money into the economy quickly, and an easy way to build favor among Republicans early on. Moreover, the Obama team appears to be hoping that, unlike last summer’s package, these are permanent tax cuts that will be largely spent rather than saved. Given the public’s current predilection toward deleveraging household balance sheets, this may be a pipe dream...

...I am hard pressed to deny a role for tax cuts; I think that it should be part of the package to provide an immediate boost. My concern is that 40% is too much, and there is a nontrivial chance it will not give sufficient longer-term bang for the buck. ... Thoughtful, sustainable policy needs be in place for the long haul to help activity transition away from bubble-dependence. I worry that massive tax cutting now is neither thoughtful nor sustainable.

Washington Monthly's Hilzoy on appeasing conservatives: [7] "screw them. Their economic philosophy got us into this mess; we should not let them force us to use ineffective means to get out of it. If the Democrats can't keep enough of their Senators in line to get this passed, and corral a couple of Republicans, then we're in worse shape than I imagine"

Naked Capitalism frets: [8] "As always, the devil lies in the details, which we will see in due course. But on a first pass, this looks like a pretty big ticket way to co-opt opposition."

Conservative Michelle Malkin rips Senate Minority Leader Mitch McConnell [9] for entertaining compromise: "Here I was, gearing up this week for a united conservative front against the Obama boondoggle, and Mitch McConnell opens his mouth."

EFCA Update

House Majority Leader Steny Hoyer, on Fox News Sunday, raised expectations [10] for early consideration of the Employee Free Choice Act: " I think it will be early. I think it will be early in the year, certainly in the early spring."

DailyKos' Trapper John on the critical importance of EFCA: [11] "federal law is suppposed to preserve the free choice of employees to choose unions, but in practice it does no such thing. And that's why we need the Employee Free Choice Act -- to restore the right of workers to choose whether to unionize, and in so doing, to restore a real, secure middle class."

In These Times' Art Levine reviews Bush's sorry labor legacy to further make the case: [12] "...the Labor Department that was supposed to protect workers’ lives and paychecks did practically nothing to stop 6,000 workers from being killed on the job each year and having an estimated $19 billion stolen through corporate wage theft of pay for overtime and minimum wage."

Breakfast Sides

Stateline reviews the weakened social safety net [13], and how to mend it:

...welfare reform instituted in the 1990s has made it nearly impossible for people without a job or prospects of one to receive public assistance. Welfare, or cash assistance — typically the first thing people think of when they hit hard times — now represents less than 2 percent of the nation’s safety net, and the money available does not increase as the poverty rate climbs.

Instead of cash, state welfare workers can offer families in financial trouble a complex array of targeted aid programs such as children’s health insurance, nutrition programs for women and infants, work training and job placement services, subsidized child care, housing vouchers, substance abuse and mental health care, and home energy assistance — but many of these programs require reams of applications that can take weeks or months to process.

La Vida Locavore [14] sizes up expectations on Obama's food policy

Democracy Arsenal [15] finds great diversity of opinion in the American Jewish community about the Gaza conflict, while Mondoweiss [16] praises J Street [17] for refusing to cave on its call for a cease-fire.

The New Yorker's Jeffrey Toobin [18] profiles Rep. Barney Frank, and concludes: "Frank’s prescience on the housing crisis should not be overstated..."