The road to economic recovery has been extremely bumpy for businesses and Americans looking for jobs. While I think only the private sector can create the jobs we need to recover, Congress can make the road to recovery smoother. This week the President offered two proposals that are like filling in potholes while ignoring the fact that the bridge ahead is falling into the water.
President Obama’s first pothole-filler is $50 billion in additional infrastructure spending. I agree with the President that investment in infrastructure has economic benefits, but his proposal is unrealistic and does not recognize the failures of the earlier stimulus bill.
The President wants his new $50 billion in funding paid for by tax increases and attached to the general surface transportation authorization bill. However, last summer the President opted to sign a short-term extension of this bill and not a full six-year authorization.
In other words, he’s proposing something he knows full well won’t happen anytime soon.
Only seven percent of the February 2009 stimulus act was dedicated to infrastructure. More than 60 percent of the highway funding is being spent on short-term repaving projects that take only three to four weeks to complete. As of the beginning of this month, less than 30 percent of the $63.5 billion in infrastructure funding provided in the bill has been spent.
The second pothole-filler offered by President Obama is a package of business tax credits and a permanent extension of the research and development tax credit. These are generally good proposals. Last week, I met with a number of manufacturers in my district and one of their concerns was the haphazard way that Congress has extended the research and development credit. In recent years, Congress has let the credit lapse before passing a short-term, retroactive extension.
The President is correct in saying that this on-again, off-again credit makes planning difficult for businesses. Providing certainty allows for businesses to make substantial investments for the future.
President Obama also wants to allow businesses to fully expense new investments in equipment. Incentivizing investment is a good idea. Many businesses could improve efficiency and increase profits by purchasing new computers or manufacturing equipment. Unfortunately, the President is calling for these tax credits to be paid for with tax increases in other sectors.
At the same time, the U.S. is facing the largest tax increase in our history. If we want to pave the way forward toward recovery, we have to fix the bridge.
On January 1, 2011, all marginal tax rates will rise, the capital gains tax will increase, and the estate tax will return in full force. These tax increases, all coming at the same time, will be devastating to businesses and entrepreneurs.
When it comes to small businesses, the rise in marginal rates will significantly reduce resources that could be used to hire new employees. Half of all small businesses pay taxes at the top marginal rate. These business owners aren’t greedy millionaires with yachts and summer homes. Their wealth is tied up in small storefronts and manufacturing facilities.
In order to start a new business or expand into new areas, owners and entrepreneurs need capital. Raising taxes on capital profits reduces the money available for investment. A business without access to capital cannot take advantage of tax credits for research or new equipment.
Because smaller businesses and family farms are often cash poor but asset rich, they are especially vulnerable to the estate tax. When the government assesses this tax, many heirs are forced to break up the farm or liquidate the business. Tax credits only benefit businesses that actually have the resources to operate.
Republicans are calling for an extension of the current tax rates. We need to provide businesses and individuals with certainty so that they can make long-term decisions to help their bottom line and grow our economy.
I know that President Obama honestly wants to create jobs and get our economy moving again. I just believe that he fails to recognize that his solutions are a small comfort to Americans looking for jobs and the business owners who want to hire them. I think we need to work together to make the road to recovery smooth for businesses and job-seekers.
Rep. Joe Pitts represents Pennsylvania’s 16th Congressional District.