Money For Main Street

I don't understand why this is debatable. We're in the in middle of a liquidity crisis, so cash is great in any form you can get it, including tax refunds or deferrals. That keeps creditors happy and helps companies stay in business.

According to the standard economics 101 model Matt is right. However, in the real world investment depends on free cash flow (how much money they have on hand).

The reason is that the economics 101 model assumes that firms can borrow any amount they want at a constant interest rate (equal to the one they get on their financial assets). In the real world, corporations like individuals are liquidity constrained (want to borrow but can't).

You might have read something about a credit crucnch -- banks unwilling to lend -- catatonic banks etc. In such circumstances an infusion of cash will cause firms to spend more.

I mean in the economics 101 model tax cuts for poor families don't affect consumption demand and there are no recessions and come on Matt.

Some businesses today that want to expand can't raise the capital because of the credit crisis. To the extent that this money got to them (as opposed to businesses without good investment opportunities), it would result in investment. The problem is, how common will that be? How much economic effect per dollar of public expenditure? The efficiency of the stimulus effect needs to be kept high.

Now allowing a business to effectively borrow from its future, by say claiming a tax credit early, would be a good thing in the current crisis. We need to get both a large, and timely stimulus going, but don't want to end up with too much long term public debt to do it. Such a time borrowing effect could reduce the pressure to spend the other parts of the stimulus package quickly, as opposed to spending it on infrastructure we will need in the future.

Give the money to the poor and needy. It will filter through the local economy many times and significantly provide boost.

The mighty Mississippi is the confluence of tens of thousands of tiny streams.

The trickle-up theory.

Isn't the more important issue, how much can be used for offset? And Kevin, why the same damn problem as over at old digs with the "Remember personal info?" buttons not working?

This is the opposite of what we need. What this leaves is why businesses hold empty storefronts and houses and allow blight to creep into our daily life, instead of allowing businesses and families to move into those spaces at a realistic market value.

As charming as it is to have Leftists who know neither business nor accounting treatment piss and moan (as they are wont to do on any given issue related to business), your American bloggers pissing on.

Profitability is not divorced from taxation, Yglesias' analysis (without knowing US tax code), likely returns are DIRECTLY impacted by tax rates. Reduction of tax rates improves, ceterus paribus, returns. That may or may not be an efficient solution, but his analysis is fundamentally illiterate.

Regarding the extension of tax loss carry forwards, I would imagine that various categories of firms will be differently impacted, but I am not conversant with American tax law and rules (although it does have a reputation for being terribly byzantine and parochial).

(And I may add comments supra re tax loss carry forwards characterised as inflating returns, that tax loss carry forwards are a long standing practice, there is no necessary inflation, nor did tax loss carry forwards contribute substantially to the actual crisis among).

As for the economic impact, without taking a particular view on a theoretical proposal, allowing current losses in a generalised recession to be charged against profits over a five year period, if one expects to return to profitability, would encourage some investment. It does reduce costs that reduce profitability, but is it well targetted and efficient? that is an emperical question not answerable by blogger whanking by Right and Left ideologues.

Regardless of the debate here as to loss recoveries and their impact on the profit and loss of companies (which it does impact). The issue not being discussed is cash flow. In many companies, such as my small company, profits are less important than ongoing cash flow to support inventory creation and cover payroll. A lot of small operators such as myself would benefit by having more cash resources available. While some companies may not put this additional cash to use thereby having no net short term positive economic impact, others will, and the net effects are to put more liquidity in the hands of many businesses large and small. So the average storefront in your neighborhood may well be a corporation that paid significant taxes more than 2 years ago that may now have a cash flow opportunity to allow it to survive the current great recession. This helps main street.

Businesses spend money based on calculations of the likely returns on spending. Insofar as it's profitable to expand operations, businesses will spend money on expanding operations. Insofar as it's not profitable to expand, businesses won't expand.

Uh, no.
That may be true for IBM, GE, etc., sometimes. But there are a huge number of businesses that expand even though there is no expectation of profits in the near-term. Some do it to meet contractual obligations, some do it to fill a niche, or to eliminate a competitor.
Now and again you'll run across the rare creature that does it to serve the community they're part of.

I was under the impression that the last few years were years of startling profitability of US business as a whole. I remember reading descriptions of 10% growth in profitability every year for the past few years in the Economist. Companies that could not be profitable in the boom climate of 2004-2007 may not really be the kind of companies we want to be supporting.