Barack Obama's Outcome Tax Cuts
Economics: When is a tax cut not really a tax cut? President-elect Obama's economic program will reduce your tax bill if you jump through a series of hoops — or fail in business.
Considering how difficult it always is to control the growth of government, it's tempting to embrace what might be called the Will Rogers school of economics: "I never met a tax cut I didn't like."
Maybe any tax cut is better than no tax cut, but a clear view of what the incoming Obama administration has planned raises serious concerns.
Not surprisingly, considering the class-warfare rhetoric of his campaign, the next president has fallen into the politics-driven trap that has plagued so many of his fellow Democrats: being unable to support a plain old across-the-board cut because "the rich" might get to keep more of their money.
So instead of simply accepting the wisdom of the big Bush across-the-board tax cuts on income and investment, he'll propose what you could call "outcome-based tax-cutting": You're getting a tax cut because Uncle Sam wants a certain thing to happen, like a failed business to unfail.
That philosophy of government micromanagement of the private sector cannot work.
First, there's the glaring flaw that the Obama business tax plan gives a one-year tax credit for companies that generate new jobs or back off on layoffs.
The idea is to give them some relief while they're under strain, like handing a cup of Gatorade to a long-distance runner. But no one can run a marathon without food in his stomach and a road without obstacles.
Businesses need the certainty of low taxes in the long-term future to get past the financial crisis and do well, not the fiscal policy equivalent of a performing seal being rewarded with a sardine from its master.
Then there's Obama's proposed expansion of the write-off for businesses from the current $175,000 to as much as $250,000 for the next two years. This rewards firms who have done badly and may even encourage losses in the future.
Businesses that have done well get no such bonus. It's like applying the failed thinking behind welfare — cash handouts from the government for those who fail — to industry.
What's more, this would superimpose more complexity onto an already burdensome tax code. For accountants, the New Year's Eve party may have only just begun.
Finally, for run-of-the-mill taxpayers, there's Obama's "Making Work Pay" program. It begins with yet more rebates, which — as the Bush administration discovered twice — does little if anything to stimulate the economy.
Sending out nice, fat checks from the U.S. Treasury is an idea that goes back at least to the failed presidential campaign of George McGovern in 1972. But for a tax cut to have any real stimulative effect on productivity, it must serve to reward that productivity: the more you produce (i.e., earn), the bigger your tax cut.
Barack Obama may soon be saying in every speech he makes as president that he enacted the biggest tax cut in history — citing the mind-boggling figure of $300 billion.
But cash from Washington for people who don't pay income taxes, and for businesses that don't work, is not tax-cutting. Instead, it's exactly what Obama the candidate promised Joe the Plumber: wealth redistribution.