Monday, September 5, 2011

Poor Premise Supports Corporate Tax Holidays

In Foreign Income Rising, I discussed the potential for another corporate tax holiday to allow repatriation of foreign income. This evening, Andrew Ross Sorkin discusses the matter along with a recent proposal to reduce the employer portion of Social Security taxes (link below). Sorkin reaches a similar conclusion that temporary tax breaks are unlikely to result in significant job growth but will increase the federal deficit. While the source of the proposals (Chamber of Commerce) should make clear which group's priorities are being considered, it's important that politicians recognize the source of our current economic weakness. Business are not hiring because demand for their goods is not significant or stable enough to warrant new employees for increasing production. Demand stems primarily from individuals, who are currently overburdened with debt and choosing to pay down debt rather than increase spending. If temporary tax cuts are desired, the focus needs to be on individuals.

The Fallacy Behind Tax Holidays: Corporate America and Wall Street are engaging in a form of horse trading - tax cuts for jobs. There is one small problem: temporary tax cuts rarely result in new jobs and always result in less tax revenue.

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