Since when did Washington become so enamored with temporary tax cuts? “Temporary” seems to be all the buzz these days, even though there’s zero evidence that temporary tax cuts work.
For example, the Hiring Incentives to Restore Employment (HIRE) Act, enacted on March 18, gives employers a payroll tax exemption through the end of this year for hiring unemployed workers. Yet the unemployment rate hasn’t moved.
Then there’s President Obama’s recent “don’t call it a stimulus” stimulus proposal that includes full business expensing of capital equipment—but for only two years.
There are also rumblings in Washington that Democrats might be willing to extend all of the Bush tax cuts, which are themselves temporary, albeit longer than the “new temporary.” But those cuts affecting families making $250,000 or more could only see the extension for a couple of years.
And recently, Governor Mitch Daniels of Indiana—one of those being talked about as a possible 2012 Republican presidential candidate—proposed reducing or eliminating the payroll tax, but only for one year.
Of course, there’s a sense in which any tax cut is a good tax cut because it leaves money in the hands of families and companies, the rightful owners. And that’s always better than putting money in the hands of government.
But if the goal is to try and spur businesses to hire and invest, they need STABILITY. One note: “temporary” is not a synonym for “stability.” Temporary breeds uncertainty.
Most families make financial decisions exactly the same way as businesses. If your employer—or the president of the United States—gives you a bonus of a few hundred or a few thousand dollars, you might make a one-time purchase, pay some bills, or set it aside because the future is uncertain. You probably won’t make the decision to buy a new house or car. To do that, you would want long-term security that additional money would be coming in.
Businesses are no different. Front-load some money to them and they may spend a little, pay some bills, or just sit on it—because they don’t know what the future brings or how long the funds will last.
So if President Obama really wants to jumpstart the economy, lose that word “temporary.” Look at permanent tax cuts that provide the right economic incentives and the economy will do the rest.