BUSINESS
11/08/2010 05:12 am ET Updated May 25, 2011

Obama's Business Tax Credits: The Business World Responds With A Shrug

As word leaks out about Obama's new economic stimulus plan, which will ultimately cost about $180 billion and include an immediate tax credit for businesses, it's met surprisingly little support.

The business community's reaction to the plan has been tepid at best. The plan's been called too small, criticized for missing "the big picture" and for being an invitation to game the system.

Obama's plan would give businesses until 2011 to write off the 100 percent of the cost of investments in machinery or other capital expenditures. The move is is seen as an alternative to extending the Bush tax cuts for those making over $250,000 a year. As more Democrats begin to support those cuts, the president is losing political leverage.

Politico points out that Republican opposition to Obama's new business tax plan seems a little contradictory, since the party traditionally favors this type of tax credit for business.

But there may be reason to doubt just how much of an effect the proposal would have. Bloomberg caught up with a group of tax experts, including Ed Kleinbard, a former staff director for Congress's Joint Committee on Taxation, who said the credit is "an invitation to arbitrage. You're putting businesses in the same economic position as if you were inviting them to borrow money to buy tax-exempt bonds."

Bloomberg also points to a 2005 CBO report that projected that for every $1 of capital expenditures, companies can reap $1.88 in economic benefit. Still, faced with low consumer demand, businesses will likely wait until 2011 to use the tax credit.

Goldman Sachs, per the New York Times, projects the credit won't make a dent in unemployment any time soon: "To the extent it does have an effect, it is likely to pull forward demand into the quarter just before expiration (in this case Q4 2011) so the near-term effect should be even more modest (and indeed the effect in early 2012 would be negative)."

Republicans have branded the proposal with the dirty word of the Obama era, calling it "Stimulus II." Politico quotes an "administration official" who parried that attack, but seemed to acknowledge the business tax write-off was no immediate cure for America's job crisis: "They're proposals motivated by the medium and long-term. That's one of the important ways in which characterizing it as a 'stimulus two' really misses the point. They aren't necessarily a single legislative package. Many of these are permanent or long-term policies."