US Economists Cool Over Corporate Tax Cuts Plan

by Mike Godfrey, Tax-News.com, Washington

01 November 2001

A panel of top economists from US financial giants Wachovia, Morgan Stanley, and Bank One announced Tuesday that they saw few stimulatory measures within the proposed economic stimulus package which has been approved by the House of Representatives.

Speaking at an event sponsored by the Financial Services Forum, the economists argued that as introduced, the bill contains too many tax breaks for the US corporate sector, which are unlikely to have any short-term effect on the country's economy.

Richard Berner, senior US economist at Morgan Stanley, argued that the government should be considering more immediate measures such as cutting withholding tax and payroll taxes: 'The most stimulative item is one that is not on the table, and that's payroll taxes...The least stimulative aspect of any change in policy is a cut in corporate taxes,' he explained.

Although the textbook theory behind the introduction of corporate tax breaks is sound, even those who generally support the Republican agenda have their doubts. A vast overcapacity problem within American industry means that businesses are unlikely to invest the extra money in expansion, and the tabled investment incentives will likely only benefit a small number of companies whose investment decisions are right on the edge.

According to Bill Gale, economist with the Brookings Institution, if the House investment incentives are passed, capital spending may only be boosted by around 0.15% of GDP, which is hardly the immense shot in the arm the the US economy needs to prevent it from slipping into recession. .

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