Obama's latest plan gets a cool reception

The US president’s speech on his new recovery package was notable for what it didn’t say – how it will be paid for, write Jia Lynn Yang and Lori Montgomery

FACING A rising unemployment rate and the possibility of a Republican blowout in November’s midterm elections, US president Barack Obama this week sought to convince voters that he is charting a new path to revive the American economy.

Obama’s proposal for $180 billion (€141.7 billion) in fresh infrastructure spending and business tax breaks is not satisfying many of the groups he needs on his side – not politicians on Capital Hill, who are wary of raising the deficit by spending more; not economists, who say the plan is too modest to create many jobs; and not business groups that say the tax benefits come with too many strings attached.

Even some vulnerable Democrats – who have been begging the White House for a jobs strategy to present to recession-battered voters – quickly condemned the US president’s latest proposal, suggesting that it bears an uncomfortable resemblance to last year’s unpopular stimulus package.

“I will not support additional spending in a second stimulus package,” said Democrat senator Michael Bennet, a close White House ally in a tough race against Republican Ken Buck, who has campaigned against government spending. Bennet suggested that Obama recycle “unused funds” from last year’s stimulus if he wants to “improve our infrastructure”.

“We must make hard choices to significantly reduce the deficit,” he said.

In a speech in Cleveland, Obama suggested that congressional Republicans should find much to admire in his latest economic package.

His plan would make permanent a corporate tax credit for research and allow companies to deduct from their taxes this year and next the entire cost of whatever they spend in new investments – ideas pulled directly from Republican policies.

President George W Bush proposed to increase the deduction for investments at least three times during his eight years in office.

Obama’s proposals were unveiled after months of criticism from prominent chief executives who have said the president is out of touch with the needs of big business in a slow economy.

His speech was also notable for what it didn’t say: how all of this will be paid for.

The White House has said the proposals could be paid for in three ways: raising taxes on corporations with large international operations; eliminating tax benefits for oil and gas firms; and increasing enforcement of tax payments by firms. Senior administration officials declined to go into further detail, however, referring reporters to the president’s February budget, in which more than $300 billion in options were laid out.

White House spokeswoman Amy Brundage said the proposed revisions to the tax code “are broadly supported by economists and business leaders as ways to encourage investment and RD in the United States”.

Some companies such as Intel and General Electric said they would reserve judgment until they see details. Yet many business groups reacted coolly to Obama’s ideas to pay for the tax cuts.

“The new taxes would negate the intended effects of these new policies,” the Business Roundtable, an industry group that has often aligned itself with the White House, said in a statement.

Senate Republicans also quickly rejected the administration’s plan.

“More taxes and more spending makes as much sense as throwing a drowning man an anvil,” Senator Orrin G Hatch said.

The president’s budget from February offers some clues into how the administration wants to pay for its package of tax breaks and infrastructure spending.

Perhaps the most controversial is a plan to revamp the taxes that multinational companies pay. The administration stated in the budget that it wanted to make it harder for these companies to reduce their tax bills in the United States by claiming a credit on levies paid to foreign governments.

The president has frequently said that an overhaul of this part of the corporate tax code will make it more expensive for companies to operate overseas and discourage them from shipping jobs out of the country.

“For years, our tax code has actually given billions of dollars in tax breaks that encourage companies to create jobs and profits in other countries,” Obama said on Wednesday. “I want to change that.”

The White House however has run into vociferous opposition from politically influential firms. In early 2009, after the administration proposed raising $200 billion in higher taxes for multinational companies, chief executives including John Chambers of Cisco, James Owens of Caterpillar and Paul Otellini of Intel, trekked to Washington personally to protest.

The administration backed down this year when it presented the president’s budget for 2011, scaling back the proposed tax hikes on multinationals by about half.

The president’s budget also proposes raising about $40 billion in taxes from the oil and gas industry and improving enforcement of tax laws by making sure taxpayers actually pay what they owe.

The proposals could divide corporate America. IBM said this summer it was more concerned about paying higher taxes than losing research tax credits. Other companies have expressed strong support for more tax benefits for research and development.

In spite of the risk of seeing higher taxes, a group of corporations including American Express, GE and Bank of America sent a letter in August to Senate majority leader Harry M Reid and Senate minority leader Mitch McConnell reinforcing their support for such tax credits. – ( Washington Postservice)

ECONOMIC STIMULUS: HOW DEMOCRAT AND REPUBLICAN PLANS STACK UP

President Barack Obama and House of Representatives Republican leader John Boehner have offered competing plans to boost the lacklustre US economy, setting the stage for an intense debate over tax and spending policies as campaigning for the November mid-term congressional elections heats up.

Here is a comparison of those competing proposals:

Expiring tax cuts

Former president George W Bush's 2001 and 2003 tax cuts expire at the end of the year, and income tax rates revert to pre-2001 levels.

Obamawants to extend tax cuts permanently for middle-income people – couples earning less than $250,000 (€197,000) and individuals on less than $200,000. For people in higher income categories, Bush tax cuts would expire as currently scheduled.

Democrats argue that continuing middle-class tax cuts will help shore up consumer spending, while tax cuts for the wealthy add little to overall economic demand.

Boehnerwants to extend all the Bush tax cuts, including for the wealthy, for at least two years. Republicans argue that allowing tax cuts to expire for upper income people will hurt small business owners and discourage hiring.

Government spending and additional tax breaks

Obamais calling for the creation of a $50 billion infrastructure investment bank that would expand federal spending on highways, roads, bridges and other transportation systems. He argues it will help create new jobs.

Obama is also calling for allowing businesses to accelerate their tax write-offs on new capital investments and for a permanent extension of the popular research and development tax credit. This is something Republicans have supported in the past.

Boehneris calling for a cut in non-defence government discretionary spending to bring spending next year to 2008 levels. He argues it will save taxpayers $100 billion next year. He also says the $814 billion economic stimulus enacted last year hurt US economic growth.

Democrats say moving too quickly to impose austerity measures would slow economic growth even further. Republicans counter that businesses would step up demand and hiring with less government taxation and spending. – (Reuters)