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Temporary tax cut is a bad idea

Amity Shlaes has a nice article in Bloomberg today, entitled "Reagan, Obama, Summers All Wrong on Tax Credit." She makes a lot of good points—read the whole thing—but the one that most strikes me is that a temporary tax credit such as Obama is proposing benefits only established firms that have accumulated profits to invest. It does nothing to help new firms get started. A much better approach would be a permanent, across-the-board reduction in the corporate tax rate. That would give all firms, even startups, an added incentive to expand, since it would increase the after-tax returns to new investment. It effectively lowers the hurdle rate for all investment. Plus, it would allow U.S. firms to better compete with foreign firms, since the U.S. corporate tax is among the highest anywhere.

The article also has nice little tidbits such as the fact that Summers and Goolsbee are on record as criticizing such a tax in the past.

HT: Russell Redenbaugh

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