Business welcomes talk of tax breaks in stimulus

The news that President-elect Obama may include more than $300 billion in tax cuts as part of an economic recovery package was preceded by a lobbying push by businesses, which argued that providing tax relief may be a better way of reviving the economy than simply directing money to pay for road and bridge construction.

Everyone from air conditioning contractors to high-tech equipment makers have argued in recent weeks that targeted tax help would allow them to reinvest their capital to expand broadband access or rebuild infrastructure nationwide, two areas Obama has said the stimulus should focus on.

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Louis Jenny, deputy executive director of the National Association of Water Companies (NAWC), said tax breaks would benefit his group’s members more immediately since they are in the private sector. The mechanism for distributing money to companies isn’t as clear as it is for public entities that receive grants issued by the Commerce Department or some other government agency.

“There are some concerns to pushing money through the traditional avenues, which could be cumbersome,” Jenny said.

 NAWC, which represents privately owned water utilities, is seeking a five-year tax deferral on dividends reinvested in infrastructure, a lifting of the cap for private activity bonds on water project investments, and a 10 percent tax credit on all capital invested in water infrastructure over the next three years.

“It is about getting money into infrastructure. This is one way that would not cost the federal government a lot of money,” Jenny said.

The $300 billion in tax cuts for the stimulus package would be part of a package that is estimated to cost between $675 billion and $775 billion in total. Tax relief would make up about 40 percent of the relief effort’s spending. Not all of the breaks would go to businesses. The package is expected to adhere to Obama’s campaign pledge of providing up to $500 in tax credits to individuals who make less $200,000 — at a cost of roughly $150 billion. There could be as much as $100 billion in tax incentives for businesses.

Not surprisingly, the inclusion of those tax breaks for business drew praise Monday from groups like the U.S. Chamber of Commerce.

“Significant tax relief will spur consumer spending, business investment, and help jumpstart the economy,” said Bruce Josten, vice president of government affairs for the Chamber.

Support for the stimulus from business groups like the Chamber could help sway those Republicans on Capitol Hill who have expressed worry that the stimulus package is becoming too large. GOP leaders in both the House and Senate have cautioned Obama on the stimulus’s size and have proposed tax cuts instead of spending to revive the economy.

But businesses looking for tailor-made breaks could be disappointed. Although Democratic leaders in Congress say they are open to tax cuts, some congressional sources say they may be reluctant to provide breaks to specific industries. Instead, lawmakers may aim for broad tax relief to help business in general.

“Most industries have been impacted by the downturn in similar ways, and the hope is to target relief that helps across the board rather than an industry-specific approach,” a House leadership aide said.

In an address delivered this past weekend, Obama said the plan would generate 3 million new jobs, with more than 80 percent of them coming in the private sector.

“We’re working with Congress to develop a tax cut package based on a simple principle — what will have the biggest and most immediate impact on creating private sector jobs and strengthening the middle class. We’re guided by what works, not by any ideology or special interests,” said Nick Shapiro, a spokesman for the Obama transition.

Several special interests other than NAWC are seeking tax help, however. For example, the Air Conditioning Contractors of America (ACCA) wants to expand a tax incentive first established in the 2005 energy bill. Lobbyists for ACCA have asked that a $500 tax credit for energy-efficient heating and cooling systems be stretched to $1,000 and renewed for 2010 and beyond.

“If you give them opportunities to upgrade these systems, that will put a lot of people to work in repairs and maintenance. Plus, most of this industry is domestic. We don’t import a lot of this stuff,” said Charlie McCrudden, ACCA’s director of government relations.

Meanwhile, lobbyists for the Telecommunications Industry Association (TIA) have made a pitch for tax breaks to help build up the nation’s broadband network.

“It does provide companies an incentive to invest in building out their private broadband networks,” said Danielle Coffey, TIA’s vice president of government affairs.

Most business groups also favor direct spending. TIA, for instance, has embraced a proposal from the Communications Workers of America that the stimulus include grant money to expand broadband access in rural areas. TIA has suggested that the program should be funded up to $25 billion.

“Directed spending allows more of a build-out of infrastructure where it is not economically feasible for companies to deploy,” Coffey said.

Still, there is some chance that the political debate over the right ratio between tax breaks and direct spending could delay approval of a stimulus package, negating its effectiveness in jumpstarting the economy with a quick infusion of cash.

Economists across the political spectrum are in rare agreement on the need for a new spending package, but differ on how best to allocate the money. If tax breaks are included, economists say, the savings earned must be reinvested into business in order to keep and create jobs.

“The only question there is, is it for new investment, not just for spending on things that would have been bought anyway? Does it create new activity?” said Steven Fazzari, professor of economics at Washington University in St. Louis.

“The objective should be on permanent things and getting money into the hands of people who will spend it.”