Money For Main Street

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MONEY FOR MAIN STREET….Currently, businesses that lose money are allowed to use those losses to offset profits from the past two years. The result in some cases is a refund against past taxes. Part of Barack Obama’s stimulus bill is a plan to increase this period to five years, which apparently would provide businesses with about $25 billion in additional tax refunds this year. Matt Yglesias isn’t impressed:

As stimulus, this doesn’t work. Businesses spend money based on calculations of the likely returns on spending. Insofar as it’s profitable to expand operations, businesses will spend money on expanding operations. Insofar as it’s not profitable to expand, businesses won’t expand. Transferring lump sums of money to existing firms doesn’t alter the profit-loss calculus. A firm with no expansion opportunities it sees as profitable will just pocket the lump sum and consider itself fortunate. And a firm with expansion opportunities it sees as profitable will only be very marginally impacted by an infusion of cash.

I’d be curious to hear from other folks on this. Technically, this sounds right, but I think the reality might be a little different. Lots of things in the business world are sticky, and jobs are one of them. Corporations generally don’t like to lay off employees, partly for business reasons (they don’t want to lose good workers that they might not be able to rehire later), partly for ordinary human reasons (most bosses really don’t enjoy laying people off), and partly just because of inertia. So it’s possible that a tax refund that eased the P&L a bit might prompt them to keep on more workers than pure hard-hearted economic calculations might dictate. It would probably be a fairly small effect at the margins, but it might still be noticeable. Especially if the rest of the stimulus package gives business owners hope that the downturn might be short-lived.

Besides, all this does is change the tax timing anyway. Corporations that booked big losses in 2008 will be able to carry them forward against future profits regardless, which will decrease their taxes in the future. But maybe we’re better off letting them get their refunds now, rather than two years from now when the economy has picked up again?

Alternatively, this is just another big corporate giveaway. Any nice liberal economists care to weigh in on this?

UPDATE: Via Jon Cohn, Dean Baker shreds the tax write-off proposal:

The break that allows businesses to write-off losses against taxes paid 4-5 years ago (as opposed to 2 years in current law) is simply a give-away to the financial industry and homebuilders. These are likely to be the only businesses that will have losses so large that they can’t fully deduct them from earnings over the last two years.

This tax cut has nothing to do with stimulus. It is difficult to imagine that this sort of tax break would even be considered if it were not for the political power of the financial industry.

More from Jon about the stimulus package here.

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SIX TRUTHS

Reclaiming power from those who abuse it often starts with telling the truth. And in "This Is How Authoritarians Get Defeated," MoJo's Monika Bauerlein unpacks six truths to remember during the homestretch of an election where democracy, truth, and decency are on the line.

Truth #1: The chaos is the point.

Truth #2: Team Reality is bigger than it seems.

Truth #3: Facebook owns this.

Truth #4: When we go to work, we're in the fight.

Truth #5: It's about minority rule.

Truth #6: The only thing that can save us is…us.

Please take a moment to see how all these truths add up, because what happens in the weeks and months ahead will reverberate for at least a generation and we better be prepared.

And if you think journalism like Mother Jones'—that calls it like it is, that will never acquiesce to power, that looks where others don't—can help guide us through this historic, high-stakes moment, and you're able to right now, please help us reach our $350,000 goal by October 31 with a donation today. It's all hands on deck for democracy.

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