This week, President Obama announced another economic “stimulus” plan.  With unemployment nationally at 9.6 percent, and over 9 percent for the last 16 months, it is clear that the Democrats’ original trillion dollar stimulus plan has failed.  Unemployment did not stay under 8 percent as had been promised. Doubling down on failure, the Democrats have offered another big spending, deficit busting plan.

When is enough enough?

As part of the $1.2 trillion deficit-financed Recovery Act of 2009, President Obama and Congressional Democrats allocated more than $48 billion for transportation projects.  In February 2009, President Obama claimed, “My plan contains the largest investment increase in our nation's infrastructure since President Eisenhower created the national highway system half a century ago.”  Apparently the roads and bridges were more expensive than President Obama previously thought as he recently announced “a new [$50 billion spending plan] for rebuilding and modernizing America’s roads, railways, and runways for the long term.”  In his haste to spend more taxpayer money, President Obama seems to have no need to evaluate the efficacy of government infrastructure spending—as of this week, the administration’s own tracking tool, www.recovery.gov, listed $38.6 billion of Recovery Act funds still available under the Department of Transportation.  Democrat policy continues to be “Spend First, Ask Questions Later.”

Research and Development Tax Credit

The R&D tax credit has been tax policy ever since the Economic Recovery Tax Act of 1981 became law.  Since its inception, the R&D tax credit has been renewed annually for nearly 29 years. The R&D tax credit was not designed to offset costs associated with necessary or the efficiency needs of normal business expenditures, but it was designed to subsidize more spending on research and development than would otherwise occur.  So, while the R&D tax credit can have a positive impact on some small businesses, especially those in the manufacturing industry, the overall economic impact, as estimated by the JCT, tends to be relatively small—and far from enough tax relief to offset the Democrats’ $3.9 trillion tax increase that will impact many small businesses starting January 1, 2011. 

With the Democrats’ $3.9 trillion tax increase hitting all income tax rates, the impact on small businesses will have serious adverse consequences.  According to the National Federation of Independent Business, 75 percent of small businesses are organized as pass-through entities (sole proprietors, partnerships, and S Corps), suggesting their business income is subject to the individual tax rates. Nearly 68 percent of all manufacturers would be impacted, as they are organized as S-corporations which file at the individual rate as well.

Democrats Continue Failed Policies:

The R&D tax credit, as well as the immediate expensing provision proposed by President Obama, may be worthy of bipartisan support.  However, as usual, Democrats fail to offset the needed tax relief with needed spending cuts.  Instead, the Democrat proposal continues to raise taxes on some businesses in order to lower taxes for others, while continuing to increase spending to unsustainable levels.