Will expiring tax breaks send the United States back into recession and impact innovation?
In order to boost the American economy and lower the national debt, the United States is heading towards what is known as a fiscal cliff, a dangerous financial balance between cost-cutting and tax rises is on the horizon. One causality of recession management will be corporate tax breaks.
Worth over $150bn in the next decade, if lawmakers choose to adopt tax cuts in the next U.S. budget, these could affect small and large firms alike, according to the Financial Times. $600 billion dollars must be raised through tax and spending cuts in total to cut debt — hopefully without throwing the U.S. into a double-dip recession.
Not only may standard corporations feel the pinch as billions face being taken by fossil fuel companies, accounting methods used by manufacturers change, and low capital gains tax is removed from private equity, hedge fund, venture capital and real estate profits, but budgets are likely to be reduced from many U.S. government agencies, including the Pentagon.
Savings have to be made, but business may find the rising storm means that cuts have to be made for research, development and potentially hiring — but some American CEOs say they are willing to go ahead if corporate tax reform in 2013 lowers the current rate of 35 percent, which is one of the highest in the developed world.
However, not everyone is best pleased with the idea of raising revenue by hitting businesses.
“Some of those business provisions spur investment in manufacturing in America,” Kevin Brady, a senior Republican on the Ways and Means committee told the FT. “Cherry picking a few tax provisions here and there both on the individual and the corporate side makes it more difficult to do tax reform down the road.”
There is a silver lining, however, that the U.S. government is implementing to try and keep innovation on track. A proposal to award companies for patenting and designing new products has received support in Congress. Under the legislation’s terms, the ‘patent box‘ will give firms an additional tax break on innovative new products.
Elsewhere in Europe, the Financial Stability Board (FSB) is pushing for tighter restrictions on companies that operate like banks — known as ’shadowing banking’ — without being under the same scrutiny. These types of firms can facilitate lending and deposits in the same way as normal banks, but are held under lighter regulations, and is considered a threat to global economic health if it suffers its own credit-crunch crisis.
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