The White House Moves Towards Propping Up Business Investment

by Mike Godfrey, Tax-News.com, Washington

21 August 2002

The US federal government deficit was $29.16 billion in July, and for the first 10 months of the current fiscal year the government has racked up a $147.20 billion deficit compared to a $171.77 billion surplus in the same period last year.

Mitch Daniels, director of the Office of Management and Budget, said in an interview on CNBC that the worsening budget situation was attributable to several factors, including the economic slowdown and the costs associated with the war on terrorism. He also said it is clear that the government is taking a hit from the sagging stock market in the form of lower revenue from capital-gains taxes.

The deficit is much as expected, and Glenn Hubbard, chairman of the White House Council of Economic Advisers, said in a press briefing that he considered the slide in US business investment the key risk to the economy and that the administration would renew its focus on tax changes to encourage greater risk-taking, saving, investment and productivity growth.

This represents a more complex view of possible tax changes than statements made recently by the White House, which have centered on proposals emanating from the President's recent Waco economic forum and directed more towards boosting individual investment than business investment.

Four ideas have so far been mooted publicly: increasing tax deductions for individuals' investment losses from the current $3,000; cutting capital gains tax; increasing the limits for tax-free retirement savings; and cutting taxes on corporate dividends. None of these would do much for short-term business investment, so it will be interesting to see what the administration asks for from Congress when it reconvenes after its summer break.

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