Tax cut reaction mixed - East Valley Tribune: Business

Tax cut reaction mixed

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Posted: Friday, May 23, 2003 10:35 pm | Updated: 1:14 pm, Thu Oct 6, 2011.

With a new store freshly open in the north East Valley, Spencer's TV and Appliances owner Rick Beiderbeck thinks the tax cuts approved by Congress on Friday will help his business.

“Any time people have more money to spend, they will spend it,” he said. The Mesa-based retailer is one of a wide range of businesses that figure to benefit from the tax bill, which advocates hope will finally kick the U.S. economy into high gear.

But some economists are skeptical, believing the tax cuts will only cause higher deficits without turning on the business investment and consumer spending needed to get the economy rolling.

Among the cautious optimists is Dennis Hoffman, professor of economics at Arizona State University's W.P. Carey School of Business. “The way the economy is, on balance a tax cut is a good thing,” Hoffman said. “This economy needs a stimulus.”

Scottsdale-based economist Elliott Pollack also believes the action will help. “Anything that gets more spendable money in pockets is positive during a period of sub-par economic activity,” he said, but he added “it won't be like flipping a switch.”

The most immediate benefits will come from the reduction in income tax rates, which along with an increase in the child tax credit and reduction in the marriage tax penalty will give more money to consumers, and the incentives for small businesses to invest in equipment, he said.

But other economists aren't so sure the tax cuts will stimulate the economy in the way advocates hope. They argue that most taxpayers are more likely to use their windfall to pay down debts while the wealthiest taxpayers who receive the biggest benefits are more likely to save.

“Chances are, if they have debt, they're going to use it to pay down their credit cards,” said Keith Ashdown, vice president of policy for Taxpayers for Common Sense, a groups that supports deficit reduction and balanced budgets.

Hoffman see another risk — a lack of discipline in federal spending will increase the federal deficit enough to force up interest rates and choke off the stimulative effects of the tax cuts. Even with that danger, he believes all of the elements are in place for a renewal of business investment in technology and other equipment that will spark the economy.

“We're running out of excuses,” he said. “When this (economy) snaps back, it may snap back faster than a lot of people think. The firms that time this right will do really well. If they wait too long, they may be confronted with higher interest rates and tighter supplies.”

Intel Corp., which would figure to benefit from a boom in business spending on computers and other high-tech equipment, has long supported the tax benefits for small business included in the bill to encourage them to upgrade their technology, said John Kelly, Intel's public affairs manager for Arizona. He said small businesses represent about 40 percent of the nation's gross domestic product but are involved in only about one-eighth of its e-commerce — putting them at a disadvantage in competing against larger companies.

“There is a need for tax provisions to enhance small business investment in information technology, so the productivity improvements it has brought to larger business would accrue to smaller businesses,” he said.

Others are hopeful the benefits will spread far beyond the technology sector. America West Airlines, for example, is hoping the tax reduction will aid the troubled airline industry.

“The more discretionary income Americans have, the more opportunities they will have for leisure travel,” spokeswoman Janice Monahan said. Just the fact that a stimulus bill passed is a relief to many businesses, said Farrell Quinlan, vice president of communications for the Arizona Chamber of Commerce. “There were expectations that Congress would act, and if it had failed to happen, it would have had a negative impact on confidence,” he said. “The uncertainty is a lot less, and now people can make decisions and move forward.”

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