Editore"s Note
Tilting at Windmills

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December 8, 2009

OBAMA EYES JOB GROWTH.... President Obama appeared at the Brookings Institution earlier, and presented his proposals for additional -- and accelerated -- job growth. It's a pretty wide-reaching plan.

The pitch included multiple angles. The president proposed a variety of small-business tax cuts; additional investment in highways, transit, rail, aviation and, water; and new incentives for energy programs and energy manufacturing jobs. For those who are already struggling, Obama proposed keeping additional aid -- unemployment insurance, COBRA, etc. -- going. And while the president did not put a price tag on his jobs agenda -- a noticeable omission -- he did identify use of unspent TARP money as a way to pay for the new investments.

But the speech was interesting for offering more just the president's vision of a new jobs bill; he also took a stroll down memory lane, explaining how policymakers rescued the economy from a likely depression. Notably, Obama called out those who were wrong.

"So, in the weeks and months that followed, we undertook a series of difficult steps to prevent that outcome. And we were forced to take those steps largely without the help of an opposition party which, unfortunately, after having presided over the decision-making that led to the crisis, decided to hand it over to others to solve."

Recognizing the likelihood that congressional Republicans will prioritize long-term deficit reduction over short-term job creation, the president also took a moment to highlight who's responsible for the current budget shortfall.

"One of the central goals of this administration is restoring fiscal responsibility. Even as we have had to spend our way out of this recession in the near term, we have begun to make the hard choices necessary to get our country on a more stable fiscal footing in the long run.

"Despite what some have claimed, the cost of the Recovery Act is only a very small part of our current budget imbalance. In reality, the deficit had been building dramatically over the previous eight years. Folks passed tax cuts and expensive entitlement programs without paying for any of it - even as health care costs kept rising, year after year. As a result, the deficit had reached $1.3 trillion when we walked into the White House. And I'd note: these budget busting tax cuts and spending programs were approved by many of the same people who are now waxing political about fiscal responsibility while opposing our efforts to reduce deficits by getting health care costs under control. It's a sight to see."

More of this, please.

Steve Benen 12:45 PM Permalink | Trackbacks | Comments (20)

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Yeaaaah, Baaaaby: BRING IT!!!

Posted by: mars on December 8, 2009 at 12:54 PM | PERMALINK

This would only be important if Ben Nelson said it.

Posted by: David in NY on December 8, 2009 at 1:00 PM | PERMALINK

One of the most underused strategies among mainstream Democrats has been the art of pointing and laughing. It's refreshing to see Obama willing to provide leadership on the technique.

Posted by: Paul Dirks on December 8, 2009 at 1:02 PM | PERMALINK

It really is time to go on the attack against the fake christian party. The republicans got us in to this meess and they are fighting with those of us that are trying to fix it. It is like they set a house on fire and then when the fire department shows up they try to block them from putting out the fire. They are cutting the fire hoses and disabling the fire hydrants. The republicans are doing everything they can to keep the fire burning and then attacking Democrats for the republican results. This so badly needs to be highlighted to the American people. Democrats need to be standing up exposing these unpatriotic, Anti-American, hypocritical, fake christians.

Posted by: Patrick on December 8, 2009 at 1:05 PM | PERMALINK

Nice Speech. Temporary elimination of Capital Gains Tax, extension of accelerated write-offs and "incentives" to hire/retain employees for small business.

Why this is important -- A small business with $1,000,000 in gross income and current tax year $500,000 investment in infrastructure would be subject to a marginal tax rate of 35% on $1MM in profit with only $500K in free cash flow prior to the tax assessment. Net to the small business is $150,000 in distributable profits on $1,000,000 in income.

Many small business expected the effective federal marginal tax rate to increase to 46% -- which, in this example, would have reduced distributable profits to $40K (from $150K -- a substantial reduction). It was/is this "rational expectation" of reduced income that has led many small businesses to freeze hiring and consider larger layoffs than otherwise -- expecting to reduce expenses/investment to recapture the lost $104K.

Posted by: m on December 8, 2009 at 1:05 PM | PERMALINK

Wonder if the Repiglican/ Corporate Media will put these words on their 'news' programs ? Wonder if Wolf "i am a corporate nazi' Blizter will talk about this ? et all ? Whose taking bets ?

Posted by: stormskies on December 8, 2009 at 1:19 PM | PERMALINK

What about aid the states? Cheapest way to save jobs.

Posted by: Dems lose huge in 2010 on December 8, 2009 at 1:24 PM | PERMALINK

m--nice supply side argument. The problem is that most small businesses are run by the owners. The owners take out a nice salary--tax deductible to the corporation. They also take out a nice car--tax deductible to the corporation. They lease the business premises often from themselves-tax deductible to the corporation. They go on nice vacations to attend important conferences or other business meetings-tax deductible to the corporation. If they have some corporate income left they bonus it to themselves, sell the corporation something it does not need or throw a lavish party for their fellow entrpreneurs. The only reason that small businesses do not hire more employees is that they are not leaving money on the table if they do not. It is all about demand, not supply.

Posted by: Terry on December 8, 2009 at 1:25 PM | PERMALINK

Oh dear , the dreaded "Chicago" style of political persuasion has arrived .
We were warned by no less a saintly light than Billy Krystol , and of course the Sarah . The Sarah along with Krystol have a deep and unimpeachable record of concern where ever fear is found or imagined . The reliable and repeated anxiety concerning candidate Obama's propensity to pal around with terrorists , and his worrisome topographical proximity to ... Chicago , what all that means now in our living rooms . Plus Obama is a racist and a secret pal of terrorists .
This thuggish reliance on coherence and facts are chilling , freezing responsible republican talking points from breathing , even . How can this be happening in the land of the free ?

Posted by: FRP on December 8, 2009 at 1:51 PM | PERMALINK

I love how Obama started the speech talking about the mess the Rs created and what his administration has done to fix it, so far. IOW, hey distracted press, I think there's a few things you've forgotten in your rush to cover the party-crashing couple and the lies of the Rs.

Posted by: Me on December 8, 2009 at 2:20 PM | PERMALINK

I guess that Terry's argument works if one assumes that business owners have no desire to increase their income by expanding their operations. That usually involves investing money back into the business and hiring people. Fortunately, lot's of business owners are interested in making more money.

Posted by: AK Liberal on December 8, 2009 at 2:20 PM | PERMALINK

Terry -- any stimulus must account for both supply and demand. It is becoming more clear this is a "balance sheet" recession. Monetary policy has had little effect -- the "pushing on a string" analogy comes to mind.

Fiscal stimulus can/should work but ONLY if it accounts for the rational expectations of those responsible for driving the economy. Obama is trying to reset the diminished rational expectations of consumers -- the fiscal multiplier, if you will. The consumers (including business consumption), are not currently spending/investing beyond necessities -- they are hoarding acorns.

Obama's move today -- at the risk of being labeled a "supply-sider" -- demonstrates a recent and deeper understanding of behavioral economics.

Posted by: m on December 8, 2009 at 2:29 PM | PERMALINK

"Many small business expected the effective federal marginal tax rate to increase to 46%"

Maybe I am being obtuse, but where is the 46% number coming from?

Posted by: flubber on December 8, 2009 at 3:29 PM | PERMALINK

Expiration of EGTTRA (35% to 39.6%) and various provisions within proposed legislation including the 5.4% addition within the House healthcare bill.

Posted by: m on December 8, 2009 at 3:59 PM | PERMALINK

With regards to expectations, check out New Deal democrat's blog posts on leading economic indicators. Specifically, "NFIB: Small Business Optimism 'In the Tank'".


Posted by: m on December 8, 2009 at 4:11 PM | PERMALINK

OK, not bad, but why isn't Obama dealing with the biggest part of the deficit -- funding wars?????????

Posted by: VaLiberal on December 8, 2009 at 4:37 PM | PERMALINK

"M" -- You fail to make a distinction in your argument between "gross profits" -- which you like to illustrate for a higher amount of taxes owed -- and "net" profit, which is the amount upon which real taxes are assessed.

Your argument is fundamentally flawed. Maybe a refresher course in Accounting 101 is in order.

Posted by: Pauline May on December 8, 2009 at 5:17 PM | PERMALINK

Pauline -- I may indeed require a refresher in Accounting. That said, as you are likely aware, businesses -- in most cases -- are required to deduct the costs of capital purchases over the "lifetime" of the asset. In my example, the business utilized $500,000 in free cash flow to purchase capital (computers, buildings, etal.). Though the business immediately pays cash for the investment, tax law requires the expense to be deducted over the lifetime of the asset.

In theory, and practice, a business could have $1MM in taxable income and $0 in free cash flow. In this case the business would have paid taxes on the $1MM with no free cash flow to pay the IRS -- the money would have to come from personal savings.

Posted by: m on December 8, 2009 at 5:25 PM | PERMALINK


"In my example, the business utilized $500,000 in free cash flow to purchase capital (computers, buildings, etal.). Though the business immediately pays cash for the investment, tax law requires the expense to be deducted over the lifetime of the asset."

Then I'd say, as a business owner, you've made a bad decision in expending a huge chunk of cash in light of the income tax liabilities you face ahead. That's what ails so many businesses nowadays in that they jeopardize the well-being of the company by draining it of cash and not planning for bumps in the road ahead. It works the same way in business finances as it does in personal finances, too.

(And, BTW, you will indeed get relief in the form of the first year of depreciation expense -- as well as in subsequent years -- allowed on the capital purchases as an ordinary business expense.)

Keep trying. It's true that the USA has the most liberal business deduction allowances in the world, and that's why our corporate tax rate ends up being among the lowest in the world.

Posted by: Pauline May on December 9, 2009 at 11:14 AM | PERMALINK

What I like about small business owners is that they are not afraid to take huge risks and lay it all on the line. But, I agree they do need a lot of help with their marketing. I think having them go the social media and email route is not only the least expensive but its also the most effective. Thanks for the stats!
With Facebook and Twitter being among the leaders of the Social networks, marketing as a small business is being transformed..
Respondents according to the Vertical Response survey appear to need some differentiation with the use of SE marketing and Social media Marketing


Posted by: davidbaer on January 27, 2010 at 3:58 AM | PERMALINK
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