I lasted for two questions and Amodeian Answers during last evening’s telephone town hall session. The Second Question I heard was from “Dorothy from Fernley” asking: “I live in Lyon County, what does the government plan to do to bring jobs…”
The previous post described the nature of any response on offer from Nevada’s 2nd District Congressman, Mark Amodei (R-NV2). So, imagine the serpentine syntax and the following reply:
Representative Amodei was quick to let the caller know that the House had just passed a Jobs Bill, one that was a “general measure, instead of extending unemployment benefits.”
The Congressman didn’t specify what bill that was, but might have been referring to the Highway Trust Fund bill, or to the Federal Register Act, but those aren’t generally classified as “jobs” bills by the Republican leadership. The bill to which he was most likely referring was H.R. 4718, amending the IRS code to make bonus depreciation permanent. The bill “generally” helps businesses, and is an exemplar of Trickle Down in its almost pure form.
The bill passed on an almost party line vote 258-160. [roll call 404] The Nevada delegation supported the measure. So, what would it do?
One rather brutal way to describe the bill is that it adds some $287 billion to the Federal budget deficit without doing much more than allowing businesses to write off the costs of capital improvements and investments more quickly. [HuffPo]
If a person is waiting for a job in Yerington, Fernley, or Silver Springs — this bill doesn’t shorten the time. First, the corporation would have to make a capital investment or improvement, and the investment would have to be an expansion, and if it were an expansion, then it would have to expand in Lyon County…. you get the picture. Describing the bill as “generally” promoting jobs is generous indeed.
More importantly, under the Austerian/Trickle Down Theory of Republican economics this kind of measure is supposed to have an overall stimulative effect. First, bonus depreciation breaks have been in effect from 2008 to 2013. Secondly, according to the Congressional Research Service report, (pdf) they weren’t all that stimulative:
“A temporary investment subsidy was expected to be more effective than a permanent one for short-term stimulus, encouraging firms to invest while the benefit was in place. Its temporary nature is critical to its effectiveness. Yet, research suggests that bonus depreciation was not very effective, and probably less effective than the tax cuts or spending increases that have now lapsed.”
It was a bust. However, it was a tax break and Republicans believe, as an article of faith, that all tax breaks have a stimulative effect on the economy.
Not only was it a bust, but at the moment it is an expensive bust; again according to the CRS analysis:
“If bonus depreciation is made permanent, it increases accelerated depreciation for equipment, contributing to lower, and in some cases more negative, effective tax rates. In contrast, prominent tax reform proposals would reduce accelerated depreciation. Making bonus depreciation a permanent provision would significantly increase its budgetary cost.”
Remember how all those major corporations are forever telling us that the are paying the highest corporate tax rate in the Universe and that they can’t compete with other corporations based in foreign lands? Well, here’s a tax break they can enjoy:
“Compared to a statutory corporate tax rate of 35%, bonus depreciation lowers the effective tax rate for equipment from an estimated 26% rate to a 15% rate. Buildings are taxed approximately at the statutory rate. Total tax rates would be slightly higher because of stockholder taxes. Because nominal interest is deducted, however, effective tax rates with debt finance can be negative. For equity assets taxed at an effective rate of 35%, the effective tax rate on debt-financed investment is a negative 5%. The rate on equipment without bonus depreciation is minus 19%; with bonus depreciation it is minus 37%.” [CRS pdf]
Someone has to love the part wherein the capital improvements or investments are financed, the interest is deducted, and the effective tax rate can be a negative — what’s not to love? Except:
#1. The tax break was supposed to be a temporary stimulus for business expansion, with a temporary incentive for business spending.
#2. The way the current bill is drafted it’s going to cost the Federal government about $263 billion in lost revenue — from corporations, not the little guys.
#3. The CBPP informs us: ” Under current law, companies pay far less than the statutory 35 percent corporate tax rate on the profits flowing from those investments. In some cases, they pay nothing and actually receive a tax subsidy. Bonus depreciation only increases this favorable tax treatment.”
While the residents of Lyon County, Nevada are waiting for some business to expand and start hiring — the accountants at the corporate HQ of Soakem & Runn, Inc. are tasked with finding yet more ways they can reduce their federal tax liability. Therefore, the Lyon County residents must wait for the corporation to take its deductions, decide to use the money saved to expand the business, decide to locate the firm’s new improvements in the county, and take the plunge to build or expand operations. Please do not hold your breath during this process.
Meanwhile, the extension of unemployment benefits, so disparaged by Representative Amodei have a far more immediate stimulative effect on the economy.
When we were discussing the extension of unemployment benefits back in 2011, the Congressional Budget Office estimated (pdf) that the cost of the extension would be approximately $44.1 billion during the first year. [Roosevelt Inst] Yes, there is a cost, but the money circulates back into state and local economies. The Congressional Budget Office estimated more recently that not extending unemployment benefits puts an approximate 0.2% “drag” on the overall economy. [CNN] The percentage may not sound like much but when we consider that our gross national product is $17,268.7 billion [FRED] that isn’t chump change.
Instead of waiting for Soakem & Runn, Inc. to decide whether to use the new tax break for any expansion, and to determine what kind of expansion that will be, and if it will actually be in the county — Lyon County citizens might pin their hopes more realistically on the continued growth in the American GNP:
With all due respect, they’ll have a shorter wait watching the GNP and GDP charts than they’ll have waiting for the corporations to decide how to apply their new tax breaks. However, there’s more, as Representative Amodei tried to get more specific about Lyon County.
He referred to the need to pass the “Yerington Bill” which would create jobs and passed in the 112th Congress, but not in the present 113th. Again, we’ll have to speculate that he meant the bill to assist the Pumpkin Hollow Mining operations, [PHM] one which has previously gotten itself mired in partisan politics, wherein an amendment was attached allowing Border Patrol agents to bypass environmental laws they deemed too restrictive. [LVSun]
Representative Horsford (D-NV4) and Senator Heller (R-NV) are both supportive of the bill so it may have some future… but again the residents of Lyon County will have to wait. It’s July 16th, and the House is only scheduled to be in session for nine more days until the month long August break, after which the House will have ten working days in September, another two in October, seven in November, and finally another eight working days in December. [House Cal. pdf] That leaves a total of 36 legislative working days from now until the end of the year. Again, Lyon County residents might want to just keep watching the GNP and GDP trends.