Obama and The Party of Dopes … at it again with your money!

Obama, on Monday, proposed a brand new stimulus package of $50 billion in new spending on infrastructure improvement and business tax breaks. The spending, he says, will be substantially “front loaded” to immediately speed on the recovery process and create jobs – this little maneuver comes since early critics say that the program spread out over 6 years can hardly be called “immediate” in its effect! The GOP says use the unspent money from the earlier $826 billion Stimulus bill instead.

Others see this as just another Obama political payoff as most construction industries are dominated by unions.

Many question what “front loading” really means for any recovery – in the case of tax benefits due to accelerated depreciation it would be instructive to note that most businesses presently need “top” line revenues to take advantage of “bottom” line tax credits.

Obama proposes that through 2011 businesses can fully depreciate expenses for new equipment rather than spread it out over several years. That way he promises that companies that need more cash because of the economic downturn will have some and other larger companies that don’t need cash will have the incentive to “spend” the cash they do have to gain the advantage of the tax credits. And, voila – more demand, more jobs, the economy corrects and, oh joy, everyone’s happy!

Unfortunately there’s a lot of reality standing in the way of the Obama economic fantasy.

First, accelerated depreciation to the tune of 50% ALREADY exists in the so-called Obama/Pelosi $826 billion Stimulus that was previously passed – it’s called Section 179 bonus drepreciation writedown – and NOBODY’s taking advantage of it.

So the Obama thinking is “Well, then let’s DOUBLE it to 100%, surely it will work then!”

Really ? Of Course ...Twice as much unfocused thinking is always better!

For most businesses the advantage of tax credits is to offset higher taxes that would otherwise be due on and further reduce profits – but if you don’t have the revenues to generate profits to be protected from taxes by tax credits it hardly makes any sense to spend MORE money on new equipment and further reduce those profits to get the tax credits you can’t use anyway – in other words you can’t take advantage of tax credits if you can’t produce sufficient profits in the first place!

But as with most things promoted by our Government there are also strings attached to a 100 % write down for depreciation – whatever you write off now you can’t write off in future years when taxes and regulatory compliance costs MAY be higher – any bets of that likelihood with this Administration ? So do you gain a short term advantage and a longer term disadvantage? A question most companies will ask in order to decide on any presumed economic advantage in rushing out as Obama expects to purchase new equipment.

As a businessman why would you, for example, take on more debt or reduce your cash in the prevailing economic uncertainty to buy new equipment and increase capacity that you don’t need if there’s no increased or very little demand for your goods and services?

Well, one reason would be that you expect that demand will improve in the near future – but that’s hardly the situation or sentiment now.

Instead corporations are conserving cash - estimates put non-financial corporations having accumulated nearly $2 trillion and being kept liquid - chiefly because of the uncertainty about future costs coming out of Washington's zealousness for regulation and taxes. At the same time those companies also presently have about $8 trillion in liabilities - very few of them can afford to see their revenue streams compromised any further by worsening unemployment levels with a consequential drop in demand for their goods and services.

Meanwhile Obama continually fails to understand that an important part of “demand” and the vitality of the economy is psychological for consumers and buyers – “I’ll take a chance now, because I think it’ll be better in the future”, or “I want that because I believe my ability to pay for it in the future is not compromised.”

The most immediate thing this Administration could do now for American business in restoring the economy and jobs is to end the uncertainty that hangs over the nation’s businesses about what their costs will be like in the future because of Obama’s agenda for taxes, regulatory compliance, and socialism.

And the most effective and immediate way to stimulate aggregate demand is to do what the Republicans have already said to do and Obama stubbornly refuses to accept – cut employer and employee payroll taxes - to put more money in the hands of American workers and employers.

But Obama, the socialist ideologue, steadfastly continues to punish American families, workers and businesses by wasting opportunities and taxpayer dollars with ineffective solutions for jobs and economic recovery.

But then, really what else could you expect from “The Party of Dopes”?