Part of the Stimulus is Working

[Gaspar]

I did not agree with the Bush Stimulus plan or President Obama's "Garbage Truck O' Spendin," but I must admit, as of this week, part of the stimulus is hitting our business hard with some very positive results, and I want to bring it up, because it could help your businesses too.

On February 13, 2008, President Bush signed H.R. 5140, otherwise known as the 'Economic Stimulus Act of 2008'.  , Small Business benefited a great deal from the 'Economic Stimulus Act of 2008', because the Section 179 Deduction limits were generously increased.

Because of the effectiveness of these deductions they were preserved in the 2009 & 2010 stimulus programs.  They expire in December!!!

Ok, so here's what it is:

The 'HIRE Act of 2010' officially extended the Section 179 Deduction increases made available in the 'Economic Stimulus Act of 2008' & 'American Recovery and Reinvestment Act of 2009' through December 31, 2010.

The HIRE Act of 2010 - The 'Hiring Incentives to Restore Employment Act' of 2010 passed on a bipartisan Senate vote of 68-29 extending Bush's enhanced Section 179 deductions of into 2010.  Businesses can now write-off up to $250,000 of qualified equipment and software during the 2010 tax year.

Material goods that generally qualify for the Section 179 Deduction
Please keep in mind that to qualify for the Section 179 Deduction, the below equipment must be purchased and put into use between January 1, 2010 and December 31, 2010.

•   Equipment (machines, etc) purchased for business use
•   Tangible personal property used in business
•   Business Vehicles with a gross vehicle weight in excess of 6,000 lbs (Section 179 vehicle deductions)
•   Computers
•   Computer Software
•   Office Furniture
•   Office Equipment
•   Property attached to your building that is not a structural component of the building
•   Partial Business Use (equipment that is purchased for business use and personal use - generally, your deduction will be based on the percentage of time you use the equipment for business purposes.)


Apparently accountants all over the country have been warning their clients to make business purchases now!  I've gotten a dozens of calls over the last week from companies wanting to upgrade operating software and purchase new hardware.  Many of these companies are not in a growth cycle, but they know that if they wait it will be even more difficult for them to remain competitive with the increased tax burden of 2011.  The key is that they have to put the equipment/software in place by December 31st.

[YoungTulsan]

You do realize this brings the potential situation where your sales go off a cliff after January first, right?  Government influencing people to make purchases now comes at the expense of later.  Hold on to your profits if you can.  More boom and bust government economics at work.

[Gaspar]

You do realize this brings the potential situation where your sales go off a cliff after January first, right?  Government influencing people to make purchases now comes at the expense of later.  Hold on to your profits if you can.  More boom and bust government economics at work.

Yes!  But it's a hell of a ride right now. 

I have a feeling that we are all going to get a punch in the face in January.

[YoungTulsan]

I also see the mortality rate of rich old people shooting up considerably in the next 5 months.

[Conan71]

Yes!  But it's a hell of a ride right now. 

I have a feeling that we are all going to get a punch in the face in January.

Then you can start hording cash like the rest of us who have zero incentive to spend or hire right now. 

[Cats Cats Cats]

Then you can start hording cash like the rest of us who have zero incentive to spend or hire right now. 

Whoa, what?  The republican line on here has been that you hire people just because you make more money.

[Conan71]

Whoa, what?  The republican line on here has been that you hire people just because you make more money.

Ooops I let the cat out of the bag.  If you start seeing black Tahoes in the rearview mirror or black helicopters, don't pay any attention.

[Gaspar]

Whoa, what?  The republican line on here has been that you hire people just because you make more money.

Good point.  We did hire because of this.  The sad thing is that when (if) it ends, we may have to lay off. 
There is no logical reason to end such a deduction, because it spurs growth and increases collectible income taxes (as well as all of the other taxes associated with economic expansion). 

The only reason to end such a deduction is because it is one of those "tax cuts for the richest Americans."  Our clients who are taking advantage of it are all small businesses between $2mil and $100mil a year.  Most of them are LLCs (actually all 8 of them on my screen except 1 are LLCs).  If it was ended today we would experience slower growth, they would experience slower growth, and all of the companies they buy equipment, vehicles and services from would experience slower growth.

The immediate burden of this lost revenue stream to the government would simply be shifted to unemployment.  The difference is that lost tax revenue dedicated to economic growth eventually increases over-all tax revenue, and lost tax revenue dedicated to unemployment remains a void (unless you are Nancy Pelosi).

[Conan71]

Good point.  We did hire because of this.  The sad thing is that when (if) it ends, we may have to lay off. 
There is no logical reason to end such a deduction, because it spurs growth and increases collectible income taxes (as well as all of the other taxes associated with economic expansion). 

The only reason to end such a deduction is because it is one of those "tax cuts for the richest Americans."  Our clients who are taking advantage of it are all small businesses between $2mil and $100mil a year.  Most of them are LLCs (actually all 8 of them on my screen except 1 are LLCs).  If it was ended today we would experience slower growth, they would experience slower growth, and all of the companies they buy equipment, vehicles and services from would experience slower growth.

The immediate burden of this lost revenue stream to the government would simply be shifted to unemployment.  The difference is that lost tax revenue dedicated to economic growth eventually increases over-all tax revenue, and lost tax revenue dedicated to unemployment remains a void (unless you are Nancy Pelosi).

You know Gaspar, it would be helpful if policy makers in the administration and Congress actually had real world experience in operating a small business to truly understand the implications of their constant adjustments of tax policies.  Nah, that would make entirely too much sense.

I love people who cite Keynes as their hero, but to my knowledge Keynes never owned a business and never personally created jobs for others.  So often things which look good on paper work like smile in real life.

[YoungTulsan]

I love people who cite Keynes as their hero, but to my knowledge Keynes never owned a business and never personally created jobs for others.  So often things which look good on paper work like smile in real life.

I don't believe the either political party truly understands or follows Keynesian economic theory the way it was meant to be applied.

Pulled from the wikipedia entry on Keynesian economics:

Keynes′ theory suggested that active government policy could be effective in managing the economy. Rather than seeing unbalanced government budgets as wrong, Keynes advocated what has been called countercyclical fiscal policies, that is policies which acted against the tide of the business cycle: deficit spending when a nation's economy suffers from recession or when recovery is long-delayed and unemployment is persistently high—and the suppression of inflation in boom times by either increasing taxes or cutting back on government outlays. He argued that governments should solve problems in the short run rather than waiting for market forces to do it in the long run, because "in the long run, we are all dead."

So basically both sides of the political spectrum only CITE Keynesian theory when it benefits them.  What happens is we get it wrong on BOTH sides of the business cycle.  The way I understand this is, you borrow during the lean times, because you are going to pay it back during the boom times.   Instead, you have Bush cutting taxes during good times, and Obama raising them during bad times.   Between the banks that want us in never-ending debt and politicians who want instant gratification, we are pushed the wrong direction every fluctuation of the cycle.

So what we have now is a business cycle caused by a centrally controlled economy thanks to the Federal Reserve and the massive Federal government, but we have a POLITICAL cycle that acts completely against what the Keynesian system needs to function correctly (in theory).

The Austrian school of economic thought believes in more decentralized powers.  Some would argue it would lead to potential chaos, but on the other hand, the controllers of money wouldn't be so out of hand large and always growing, would they?

Look at how our local economy here in Tulsa chugs along.  During the boom times we bitched that Tulsa was slow to catch up to the rest of the country.  After the collapse, we're still chugging along at close to the same pace.  Doesn't seem so bad now.  I'd hate to see our slow but stable economy get swallowed up by harsher controls from too-big-to-stop powers above us with the continued consolidating and globalization of banks and corporations.  Not getting caught up in a boom and bust centrally commanded cycle isn't so bad.  Like Gaspar said about the upswing, it is a hell of a ride.  Think of it like a drug abuser.  You give yourself immense gratification now, but you get a more than equal amount of pain on the other side.  Only after the abuser steps out of the situation and has some clarity and distance from the madness does he see how silly the whole game was all along.

[Gaspar]

The Keynesian is academic.  It's a great teaching tool.  The model is based on the Keynesian Cross and can be applied in much the same way that SimCity can be used to teach small scale economics.  Very mechanical and devoid of the dynamics of human nature.

The variable that Keynes ignores, and for good reason, is INNOVATION.  It produces a stationary system, with a list of variables that can be controlled.  It is not a human system, it is based solely on value.

Systems based on free market philosophy use INNOVATION as the foundation.  Value is a secondary variable.  The problem with these systems (Mises, Hayek, Friedman) is that they contradict the mathematical principals of Keynes, and their reliance on human nature and INNOVATION dictates that static economies like Socialism, Communism, and programs based on Socialist models will always fail.  The larger the Social program, the more spectacular its failure.

To be a Big Government Dem/Repub you must subscribe to the Keynesian system, otherwise you are admitting that the very programs you propose are doomed to failure.

As humans, we are part of nature.  We do not function as a machine.  We have an innate drive to achieve that can't be limited or regulated without paying a price.


Economics is a theoretical science and as such abstains from any judgement of value. It is not its task to tell people what ends they should aim at. It is a science of the means to be applied for attainment of ends chosen, not, to be sure, a science of the choosing of ends. Ultimate decisions, the valuations and the choosing of ends, are beyond the scope of any science. Science never tells a man how he should act; it merely shows how a man must act if he wants to attain definite ends.--Ludwig von Mises

[YoungTulsan]

As humans, we are part of nature.  We do not function as a machine.  We have an innate drive to achieve that can't be limited or regulated without paying a price.

Now we send our kids to public schools to learn to function as a machine.  If they act up, they are diagnosed with ADHD and put on drugs.

[nathanm]

So what we have now is a business cycle caused by a centrally controlled economy thanks to the Federal Reserve and the massive Federal government, but we have a POLITICAL cycle that acts completely against what the Keynesian system needs to function correctly (in theory).

Not so much. You'll note that part of the stimulus were enormous tax cuts. Additionally, you're forgetting pre-Bush history. Raygun drove the deficit through the roof. GHWB allowed a tax increase to help deal with that, which was, oddly, shortly followed by strong economic growth. Then a Democrat then came in and completely balanced the (cash) budget, then Bush came along and unbalanced it by cutting taxes, starting two wars, then ever so brightly expanding Medicare further without any means of paying for it, thus leaving us where we are today. So no, both parties are not equally bad on this issue, although neither seems to be fully correct on it either.

My point being that tax increases don't always harm the economy, just as tax cuts don't always help the economy.

[guido911]

Interesting take:

[Gaspar]

Over a year ago, he hit the nail on the head!