More Corporate Welfare

Bloomberg reports that Congresscritters are going to tweak Obama's stimulus package:

Democrats on the Senate Finance Committee will make some “tweaks” to President-elect Barack Obama’s fiscal stimulus plan to add items sought by lawmakers such as a “stronger energy component,” said the tax-writing panel’s chairman.

There is “strong support” among Senate Democrats for additional tax breaks to spur energy production, said Senator Max Baucus of Montana, who held a closed-door meeting today in Washington with Democrats on his committee. He said lawmakers may make a “slight shift” in the portion of the stimulus plan dedicated to tax cuts.

Baucus’s comments open the window for lawmakers from both parties to seek inclusion of favored issues, said New York Senator Charles Schumer, who attended the meeting. “There was a lot of interesting discussion on how to change certain parts and make it better,” Schumer said.

I certainly hope that slight shift in tax cuts falls on the side of less of them, though that's not really what it sounds like. For instance, these business tax cuts could take a flying leap.

As part of economic stimulus efforts, the incoming Obama administration is considering tax changes that could give stumbling financial companies increased tax rebates. Right now, companies can use losses to reduce taxes on any future earnings, as well as on profits going back two years. In theory, a company that lost $10 billion in 2008 would be able to claim back taxes paid on an equivalent amount of taxable income in 2006 and 2007.

This is basically saying that Uncle Same is going to bail out corporations that shoved profits forward, and caused economic meltdown [...] Strangely, this provision will not force executives who sold options on inflated stock values to give the money back, but will allow them to force Uncle Sam to give back tax money. Pretty neat trick to run fictional profits, cash out options, and then have Barack Obama bail out your company with a tax break.

Someone has to explain to me how that will increase economic activity rather than infrastructure spending, direct aid for EITC holders or relief for state and local governments, all of which are crucial to save or increase jobs. And if it's simply necessary, offset it with a return to the Clinton-era tax rates on the wealthiest Americans. The Wonk Room has more on this bonanza for corporate America.

The biggest problem with such a tax break, of course, is that it shrinks the size of the bill that will actually be devoted to stimulus, making it ineffective.

I am somewhat concerned that if we're looking at a $700 billion stimulus and $300 billion is going to tax cuts, some of which will not be very effective stimulus, then the package will be far to small to deal with the size of the contraction.

On the other hand, my hope is that he will have some big boosts to health care spending coming later this year as part of his health care reform plan. We will need much more than $700 billion over two years to combat the downturn, but it does not all have to be in his initial stimulus package.

I'm sure this giveaway is the price of support for Republicans, and we know Obama values consensus. But is it worth minimizing the effectiveness of the bill? Is it worth playing nice with Republicans who aren't likely to reciprocate? And isn't it politically stupid to try and craft a compromise bill from the start instead of through negotiation?

Politically, Obama's generosity is unlikely to be rewarded. The congressional Republican caucus is more conservative and clueless than ever. They will see Obama's preemptive concessions as weakness, not generosity. They are already pocketing them and asking for more. Boehner is grousing about "the size of the package." Mitch McConnell responded by calling for more tax cuts and peddling the lunatic notion that rather than providing grants to states and localities to avoid massive layoffs—perhaps the most effective dollar-for-dollar spending that we can do in terms of saving jobs—the federal government should loan them the money instead [...]

(Obama is) likely to pay a price both in delay and in diminished effectiveness for the plan that emerges. He'd be more likely to get a big and bold plan passed swiftly if he had put together his package, called on the Congress to pass it, invited Republicans to join or take the risk of standing in the way, while saving any concessions on business taxes until the end if he actually needed to round up the votes. I suspect that he'd have won just about as much Republican support that way.

Obama seems to be choosing a path that builds consensus at the potential cost of effectiveness. But if the plan fails, he'll take the blame no matter how many Republicans vote for it. And Republicans will attribute the failure to government spending, no matter how much of the plan consists of tax cuts.

Absolutely. Time to be bold. I fear Obama is not getting the message.