Monday, Jan. 26, 2009 | 2 a.m.
SUPPORTERS SAY ...
Companies that would benefit from the tax break could return the money they save back into operations, perhaps to avoid layoffs or reinvest in employees’ 401(k) programs, experts say.
CRITICS SAY ...
Companies may ultimately not reinvest their savings in operations that would result in job creation or retention. Economists prefer direct government investment in public works projects that create jobs, as well as individualized tax breaks included in the stimulus plan.
Nevada Republican Sen. John Ensign is pushing legislation to help Las Vegas casinos, as well as most businesses in the country, weather the recession with a corporate tax break.
Ensign is trying to add the corporate tax suspension to the economic recovery package making its way through Congress. Support is building among the Nevada delegation — Senate Majority Leader Harry Reid has signaled an interest in the concept and Democratic Rep. Shelley Berkley may introduce a similar bill in the House.
Ensign’s legislation reflects his own party’s interest in increasing the tax component in the American Recovery and Reinvestment Act, the $800 billion package of tax cuts and public spending to rescue the economy. Tax cuts now account for less than half the package.
Economists agree that the government needs to approve a vast stimulus program to stem the economy’s further downward slide. But they disagree over the form of the program. Should the money be pumped into public works projects, creating new jobs, or spent giving tax breaks to help corporations?
The Ensign bill would allow companies that renegotiate their debt to avoid the taxes on the forgiven amount. For example, if a company persuaded a lender to reduce the company’s debt from, say, $100 million to $85 million, the $15 million in savings normally would be taxed as if it was income.
Ensign’s bill would eliminate those taxes for two years.
“This temporary tax relief would provide businesses with the incentives they need to grow, hire employees and remain solvent,” Ensign wrote in a posting last week at Forbes.com. “We know too many companies have too much debt, and our economy is immobilized until this problem is resolved.”
Four Nevada companies have joined more than two dozen others across the country in signing a letter backing the legislation. The Nevada companies are MGM Mirage, Wynn Resorts, Pinnacle Entertainment and The Greenspun Corporation, which is owned by the Greenspun family, owner of the Las Vegas Sun.
Homebuilders have called it their top priority in the stimulus package. Collectively, the companies supporting the bill represent tens of millions of workers.
Experts say a suspension of the tax would ripple across the economy — getting toxic assets off company balance sheets and thawing the frozen credit markets of lenders.
Casinos and other companies would have cash freed up to invest in their businesses and help with operations — for example, by retaining workers who otherwise might face layoffs or funding 401(k) retirement accounts.
“This has a cascading impact,” said Martin Regalia, chief economist at the U.S. Chamber of Commerce, which is backing the bill. “It tries to provide a little more cash to companies to get them straightened out.”
The business community points to the similar tax break Congress approved last summer for homeowners who renegotiate their mortgages as an example.
But critics doubt that money companies save with the tax break would necessarily flow back into the economy in the form of job creation or retention.
Many economists prefer direct government spending on public works projects to build roads, schools or renewable energy programs, as well as the more individualized tax breaks offered in the package. The main tax break in the recovery bill would give working individuals a $500 credit or $1,000 for couples.
John Irons at the liberal Economic Policy Institute said money put directly into people’s hands is more stimulative than corporate tax cuts because it will be spent “on everything from rent to the local McDonald’s. That’s going to get into the economy right away.”
Struggling companies, he said, “need customers, they don’t need tax breaks on their nonexistent profits.”
Consumer advocacy groups argue that similar tax holidays are not being extended to individuals struggling under mountains of debt. Nevadans have some of the nation’s highest rates of consumer debt — much of it accumulated on credit cards as they struggled to keep homes from foreclosure.
When consumers negotiate down their debt with their credit card companies, they must pay taxes on the difference.
“For consumers who are choking on credit card debt, there is not a similar option,” said Travis Plunkett, legislative director at Consumer Federation of America.
Ensign expects that congressional analysts who analyze legislation will determine that it would cost the Treasury at least several billion dollars in lost tax revenue — possibly as much as $18 billion.
But he believes those numbers are skewed: Most companies will not renegotiate their debt without the tax break — so Uncle Sam is not collecting taxes anyway, he said.
Ensign presented the bill several weeks ago to then-President-elect Barack Obama’s chief of staff, Rahm Emanuel, during a meeting with Republican lawmakers on the Hill, and he may try to have it included during this week’s Senate Finance Committee hearing on the recovery package.
Senate Democrats inserted a more modest version of his proposal in the draft recovery bill released late Friday. It would maintain the tax, but allow companies to spread out the payment over four years. It costs $511 million.
Berkley may unveil similar legislation in the House.
“Our No. 1 job now is to get our fellow citizens back to work,” the congresswoman said. “If this helps keep people working by keeping businesses solvent, I support it.”