Lose the tax credits

Bill Clinton's economic package-- oh you know, the one he spent the whole campaign talking about--is being held up in Congress. The sticking point concerns Clinton's proposed package for short-term stimulus, a combination of spending and tax credits.

Clinton is facing opposition from Democrats and Republicans alike for his proposed short-term tax credits for business. The credits provide business with $21.4 billion in tax credits for investment in equipment bought between December of 1992 and 1994. After two years, the tax credit would end for big businesses; for smaller companies, a reduced credit would continue.

Clinton argues that the credits will add just the right zing to his short term economic growth plan by encouraging companies to invest in new equipment and machinery. The companies will then spend more money as will the businesses who sell the equipment, according to the theory. These businesses will spend money on employees who spend money at other businesses who will also hire more employees.

If it were all so nice, Clinton might have had more support from business leaders, economists and his own party's congressional leadership. He does not have overwhelming support from any of these groups.

With the economy in recovery, many economists feel that the short-term credits are unnecessary. Lawmakers on both sides of the aisle would prefer to use the $21.4 billion for other purposes, whether it be to fund more programs, reduce the overall tax burden, or take care of that pesky deficit.

Peculiarly, business leaders have also not given Clinton's tax credits proposal much support. The proposed credit is lower than business leaders had expected. At its proposed level, they argue, few businesses will be induced to invest in new equipment of machinery. Thus, the credit will not have its desired effect.

Clinton needs to let go of this part of the package. He already has excellent means for stimulating short-term growth in programs built into his spending package. This spending could provide the jump start needed for the economy while giving jobs to unemployed people and repairing the neglected infrastructure. Clinton should concentrate on this part of his economic package.

The current sticking point is just that, a sticking point. The $21.4 billion in business tax credits will not make a big enough ripple to accomplish Clinton's desired goal. But in giving up on the short term tax credits, Clinton should not cave into corporate demands to keep the tax rates at 34 percent rather than 36 percent. To do so would be to jeopardize the entire scheme of revenue enhancement.

The real driving force behind a sound economy is confidence. Confidence will come when the deficit is under control, another Clinton campaign goal. He should give up the battle in Congress to win the war on the deficit and to pass his overall economic package.


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