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Wednesday, September 8, 2010 - 1:18pm

Businesses Wonder How Much Tax Breaks Will Help

The business community greeted President Obama's proposed tax incentives for research and new equipment with a mixed reaction on Wednesday.

Ron Bullock, owner of an Illinois manufacturer of industrial gears and motors, says the presidents initiatives could help.

"I think its a great step in the right direction," Bullock says.

He likes the idea that businesses that make new investments in plants and equipment in 2010 and 2011 could almost immediately deduct that cost from their taxable income -- so their out-of-pocket cost of investing could be dramatically reduced.

"As a business owner, you are very sensitive to how the cash is flowing in and out, and this would be helpful," Bullock says.

Companies considering buying equipment containing components built by his company, Bison Gear and Engineering, might be more apt to make the purchase.

Across the country, Rob Arnold, the president of GeoSpiza, which makes software for genetic analysis, is also looking at the tax breaks. Hed could use them for new computing and telecommunications gear.

"As a small but growing company, we are just at that part of the process where were starting to make money and what we we'll be looking at as we plan our capital purchases in 2011 is, Is this an incentive we can take advantage of?" Arnold says.

He says the tax break alone wont be enough to prompt a purchase, but it would help.

As for Obama's proposal to expand the research credit, Rob Atkinson, head of the Information Technology and Innovation Foundation, likes it. He believes the credit would keep more research at home and bring some back to the U.S.

"Economists have long agreed that research and development tax credits encourages companies to do more R&D than they would otherwise, but in recent years there have been studies that show not just that it encourages companies not just to do more of it but to do more of it in a particular place," Atkinson says.

Atkinson says research suggests that well over 100,000 new U.S. jobs would be created if the research tax credit were as generous as the one proposed by the president.

But John Graham, who teaches at Duke University's business school, says it's not clear any of the president's proposals will create a large number of new jobs at least in the short term.

"I think this will help companies spend even more. The problem though is sometimes you buy more machines that replace employees," Graham says.

Still another issue: If companies arent turning a profit, these tax breaks won't do them much good. Bill Rys, tax counsel for the National Federation of Independent Business, adds that the credits wont have much value to most of the group's members.

Indeed what many businesses -- including Bison Gear -- seem to worry most about is taxes. They fear tax increases could offset any benefit from the proposed incentives or even make their economic predicament worse. Jay Timmons is executive vice president of the National Association of Manufactures

"The message seems to be 'We want you to invest. And we are willing to let you have this pot of money to do it with, but by the way, we are going to take this other pot of money away from," Timmons says.

All of this will no doubt be debated -- since the proposals have to be approved by Congress. [Copyright 2010 National Public Radio]

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