Expanding deductible expensing of capital purchases by businesses "will encourage growth," said Club for Growth president Pat Toomey in a statement at the organization's Web site.
"Unfortunately, most of the rest of what is being described as 'tax cuts' either won't change incentives or are not even tax cuts. Temporary, capped tax credits do not increase incentives and will not spur growth. 'Refundable tax credits' -- those paid out to people who do not owe taxes -- is an Orwellian description for government spending," Toomey said.
The problems with Obama's tax plan are fourfold:
First, the solutions are short-term when the economy's needs are long-term. To succeed, businesses must have tax policies that are not phased out in a year or two.
Second, he seems to have trouble understanding that businesses will hire more workers when their profits start to rise and business improves. Government can help boost profits (a word Obama rarely utters) by cutting corporate tax rates that will make businesses more competitive at home and abroad and boost their bottom lines.
Third, there seems to be no recognition among his advisers that capital is the lifeblood of the U.S. economy and the businesses that make it run. Raise the cost of capital, as Obama has proposed, by hiking the capital-gains taxes and dividends, and you get less of it. Cut the capital-gains tax -- or eliminate it, for that matter -- and you'll unlock needed investment capital and put it to work.
Fourth, a dynamic economy requires that we offer permanent incentives at all income levels to work, save and invest. Raising taxes on workers in the top tax brackets to redistribute their income to those on the lower brackets will not create economic growth; it will lessen it. Obama has wisely agreed to indefinitely postpone his plan to raise the top income tax rate to nearly 40 percent, but he hasn't abandoned it.
There seemed to be a collective sigh of relief among tax reformers this week when Democratic leaders said that work on the stimulus package he wanted to sign on Inauguration Day will take much longer than expected -- maybe a month or two more.
That offers his critics time to give his proposals a much-needed debate and the chance to argue that an economic system as big and complex as ours is going to need larger tax-cut incentives to put the economy back on the road to recovery.