President Obama on Wednesday proposed two new tax breaks for companies that invest in new plants and equipment or spend money on research and development. The business community’s reaction to the proposals was mixed.
Ron Bullock, owner of an Illinois manufacturer of industrial gears and motors, says the president's initiatives could help.
"I think it's a great step in the right direction," he says.
Bullock likes the idea that businesses that make new investments in plants and equipment in 2010 and 2011 could almost immediately deduct that cost from their taxable income -- so their out-of-pocket cost of investing could be dramatically reduced.
"As a business owner, you are very sensitive to how the cash is flowing in and out, and this would be helpful," Bullock says.
Companies considering buying equipment containing components built by his company, Bison Gear and Engineering, might be more apt to make the purchase.
Across the country, Rob Arnold, the president of GeoSpiza, which makes software for genetic analysis, is also looking at the tax breaks. His Seattle company could use them for new computing and telecommunications gear.
"As a small but growing company, we are just at that part of the process where we’re starting to make money, and what we'll be looking at as we plan our capital purchases in 2011 is -- is this an incentive we can take advantage of?" Arnold says.
He says the tax break alone won't be enough to prompt a purchase, but it would help.
Rob Atkinson, head of the Information Technology and Innovation Foundation, likes Obama's proposal to expand the research credit. Atkinson says the credit would keep more research at home and bring some back to the United States.
"Economists have long agreed that the research and development tax credit encourages companies to do more R&D than they would do otherwise," Atkinson says. "But in recent years there have been new studies that show that it encourages companies not just to do more of it but to do more of it in a particular place."
Atkinson says research suggests that well over 100,000 new U.S. jobs would be created if the research tax credit were as generous as the one proposed by the president.
But John Graham, who teaches at Duke University's business school, says it's unclear if any of Obama's proposals would create lots of new jobs, at least in the short term.
"I think this will help companies spend even more. The problem, though, is sometimes you buy more machines that replace employees," Graham says.
Still another issue: If companies aren’t turning a profit, these tax breaks won't do them much good. Bill Rys, tax counsel for the National Federation of Independent Business, adds that the credits won't have much value to most of the group's members.
Indeed what many businesses -- including Bison Gear -- seem to worry most about is taxes. They fear tax increases could offset any benefit from the proposed incentives or even make their economic predicament worse.
"The message seems to be 'We want you to invest. And we are willing to let you have this pot of money to do it with, but by the way, we are going to take this other pot of money away from you,'" says Jay Timmons, executive vice president of the National Association of Manufacturers.
All of this will no doubt be debated -- since the proposals have to be approved by Congress.
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