Two days, two politicians, one tax-cut reaction

President Obama, from Wednesday’s speech in Cleveland announcing new tax incentives for businesses:

I’ve never believed that government has all the answers to our problems.  I’ve never believed that government’s role is to create jobs or prosperity.  I believe it’s the drive and the ingenuity of our entrepreneurs, our small businesses; the skill and dedication of our workers that’s made us the wealthiest nation on Earth. I believe it’s the private sector that must be the main engine for our recovery. 

Republican gubernatorial candidate Tom Emmer, in Monday’s speech announcing tax cuts and incentives for businesses:

“The biggest problem we face is not that government has a budget deficit, but that Minnesota has a jobs deficit,” Emmer said at Permac Industries, which makes parts for medical device manufacturers and other industries. …

“I am not here to say I can save or create some number of jobs,” Emmer said. “Governors and governments don’t do that, despite what some might say. What we can do is create a business climate that will lead to job creation.”

What’s striking about two such different politicians is that their proposals engendered the same cautious reaction from the business community, at least when it came to hiring.

From the Strib’s front-pager about Obama’s proposed research-and-development and capital-equipment tax breaks:

Douglas Frame, president of Minneapolis-based manufacturer Phoenix Solutions Co., said he supports tax breaks for research and development for businesses, but doesn’t expect it to lead to an immediate boost in jobs. …

Many businesses say the key factor in their spending decisions is the availability of good business opportunities, not tax consequences.

The Minneapolis-based biotech and hematology company Techne doesn’t see a meaningful effect on hiring from the tax credit on research and development. John Syverud, assistant director of business development for Techne’s subsidiary R&D Systems, said the subsidiary already invests about 10 percent of its revenue in new product research.

“Our spending is driven by our interest in maintaining the growth of the company, as opposed to being driven by tax policy,” Syverud said.

From the Strib, on Emmer’s rollout of r-and-d credits, corporate rate cuts, deductions and property tax reductions.

Permac CEO Darlene M. Miller offered her firm support of Emmer’s proposal, though she said even if the tax cuts were enacted immediately, it probably wouldn’t spark any immediate hiring at her company. 

It seems pretty clear that tax cuts won’t solve the job problem in the near-term — which, let’s fact it, is the reason Dems are going to get pasted in November. It makes you wonder if tax cuts would make a difference in the first few years of an Emmer term.

Although I’m a big lefty, I don’t bring this up for partisan purposes. I don’t want to dismiss the contention that reduced taxes will mean more hiring over time or that Emmer’s cuts, which seem more permanent than Obama’s, might be better targeted. But I do think we need to think about how much magic politicians of any party have to offer on the jobs front this election.

By the way, as pure economic stimulus goes, both proposals represent a drop in their relative buckets: Obama’s are worth $100 billion or so a year in a $14 trillion economy; Emmer would inject about $300 million into the state’s $217 billion gross domestic product.

What do you make of all this? Do you see business tax cuts triggering more hiring, more quickly, or believe that one plan is superior to the other? No ideological boilerplate, please.

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Comments (6)

  1. Submitted by Lora Jones on 09/09/2010 - 01:48 pm.

    The quoted business people are right, and that’s why the Repub meme about cutting taxes to create jobs is such bunk, and has been proven over the past 30 years to be, if anything, counterproductive to the real creator of jobs and grower of businesses — demand, i.e., higher wages for those of us most likely to spend it, the middle and lower classes.

    Unfortunately, Obama has tasted the Kool-Aid, and like the first stimulus, which was way too heavy on ineffective tax cuts and way too light on direct job creation/infrastructure programs, his newest tax cut proposal won’t do much for the jobs picture. I assume he’s just trying to underline the point that the Repubs don’t want to play, even when it’s their very favorite game.

  2. Submitted by Eric Larson on 09/09/2010 - 03:00 pm.

    Just met with a customer who over sees investment portfolios for private individuals. She works for a large downtown mpls corp we all know. She is responsible for looking after just under half a billion dollars of mostly Minnesotan money. She said the biggest problem is un-certainty. In all her years she has never seen her elite client base so un-sure of where we will be tomorrow or next year. So they pay down debt, save more and are taking on little if any new risks.

    Now my opinion. Her comments reminded me of Amity Shlaes book ‘THE FORGOTTEN MAN A NEW HISTORY OF THE GREAT DEPRESSION’ One of the themes was referred to as a ‘Capital Strike’. Business types were so nervous about what the government was going to do next. They squirled the money away. Investment capital can be a very nervous animal. Investment capital craves predictability and stability.

    Coming from a pro-business republican, the Emmer plan looks more predictable and dare I say more permanent. Whereas the the capitalism leery President is offering something temporary. And most likely would not be offering it if the election forcast wasn’t so dire. In other words, less permanent.

    Prediction: Repubs take one or both houses of congress. Financial markets take off. Similar to the post 1994 wipeout then economic boom of the Clinton years. Why? Because gridlock became the norm. No big changes that made investment capital edgy was possible with congress controlled by the repubs. Thus predictability and stability could be counted upon. Jobs will follow.

  3. Submitted by John Edwards on 09/09/2010 - 04:31 pm.

    Eric has nailed exactly what is likely to happen.

  4. Submitted by James Hamilton on 09/09/2010 - 05:56 pm.

    I’m glad to read that some acknowledge tax cuts aren’t going to spur hiring. Anyone who’s ever been in business knows you worry about taxes only when you make a profit.

    From where I sit, the problem is that no one is prepared to move ahead. Banks don’t want to loan money when they can borrow it from the Fed and then loan it back at a profit. Companies don’t want to invest in new equipment without assurance that they’ll have a use for the capacity. Households don’t want to spend what they might need next month to replace a lost job or a reduced paycheck.

    I don’t know how you get the merry-go-round spinning again, but doubt it has anything to do with taxes.

  5. Submitted by Rick Ellis on 09/09/2010 - 09:09 pm.

    I’ve spent a lot of time writing about unemployment and job creation in the past year and there are very few non-politicians who believe tax cuts are going to create jobs. They might help grow the economy in the very long run, but as several people have already noted, the big problems right now are a lack of confidence and a lack of customers.

    That’s why spending that directly employs people is a better driver for job creation right now than tax cuts. Cutting taxes for a small business by $10,000 won’t encourage them to hire someone new. But employing potential customers will boost revenue and everyone’s confidence.

    The problem with this conversation is that the best answers cut across political lines and no one wants to listen to ideas that they’ve been campaigning against.

    Lastly, the problem with the Emmer tax cut plan is that even if it does create jobs in the medium-long term (which I don’t believe), he doesn’t really address the problem of what it would do to the state budget.

  6. Submitted by Bernice Vetsch on 09/10/2010 - 10:20 am.

    Amen to Rick Ellis.

    George Bush cut funding for the Small Business Administration year after year, making it harder every year for potential entrepreneus to get loans.

    In today’s financial mess, President Obama should be making hundreds of millions of dollars available for those who would create the new economy — the one that would make us independent of oil instead of fighting wars for it: solar, wind, water, plant-based oils and fuels, energy-efficient homes and buildings — anything that would help.

    The only tax breaks that might help could be those that go to the consumers who purchase goods from these companies.

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