Thursday, September 09, 2010
While night follows day, spending on investment doesn't directly follow cuts in taxes on investments as the WSJ implies is the case. And the flaw with one time tax cuts is not just, as the WSJ argues, that businesses will simply accelerate purchases, but primarily because one time events are not viewed as something that changes the dynamic on an on-going basis. Nor does allowing immediate deducting on expenditures result, as the WSJ seems to imply will be the case, in a waning of the fear that is keeping businesses on the sidelines. First of all, even an immediate deduction still leaves the company with less money than they had before making the purchase... and, second, it doesn't matter how fast someone can deduct an expenditure, if the business doesn't think they'll get back in increased sales more than they lay out for the purchase, they're not going to make the purchase.