NORTH BAY BUSINESS JOURNAL EVENT

Impact Napa

Tuesday, August 26, 2008, 8-10:45 a.m., Napa Valley Marriott, Napa

Best Places to Work 2008 Awards Reception

September 25, 2008, 5:30-7:30 p.m., Doubletree Hotel, Rohnert Park

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Stimulus check is on the way, but investment is more critical

With the federal stimulus package passed into law last week, Washington will be sending hot checks – remember the deficit – of up to $1,200 to American households later this year.

The bill also includes incentives to business to speed up investment, and that is all good as far as it goes.

But if Washington really wants to ensure the long-term health of the economy, it has to ensure conditions exist to encourage risk-taking and investment.

Congress could take a big step in that direction by making permanent the 2003 tax cuts that are due to expire in 2010, all too soon for companies considering long-term investment.

Especially critical are the capital gains and dividend tax rates, which were cut from 35 percent to 15 percent. Also important were tax write-offs for businesses investing in new plants and equipment.

Indeed, in the years that followed the tax reforms, business capital spending is reported by the Wall Street Journal to have increased 7.4 percent in 2004 and 9.5 percent in 2005.

On the North Coast, the stimulus package came up short for the high-growth, energy-efficient solar industry when an expiring tax incentive for large installations was removed. Many continue to work to restore this incentive to expand energy-efficient and environmentally friendly solar technology.

But on a much broader scale, Congress is beginning to awaken to the need in this globally competitive environment to reduce U.S. corporate tax rates, which at 35 percent are among the highest in the world.

Consider, for instance, Ireland. One of the North Bay’s largest medical device companies maintains a plant there. In addition to offering a highly educated work force and incentives to locate jobs there, Ireland’s corporate tax rate is 12.5 percent.

So if Congress is really serious about stimulating the economy and keeping jobs here, reducing taxes and increasing the return on capital investment will produce real, long-term results.

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