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WASHINGTON (AP) - President-elect Barack Obama's proposed stimulus package would provide businesses with billions of dollars in refunds on taxes they paid several years ago.
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The refund provision would enable some companies posting losses last year to get refunds for taxes paid as far back as five years earlier.
The businesses could refile their old tax returns, using the losses suffered last year to offset profits made when times were good.
Under current law, businesses can use losses to offset profits the two previous years.
By all reports, the stimulus will be massive. Stanley Collender, a respected budget expert, thinks the 2009 deficit could exceed $1.3 trillion, about 9 percent of the economy (gross domestic product). In dollars, that would triple the 2008 deficit of $455 billion. As a share of GDP, it would dwarf Ronald Reagan's post-World War II record of 6 percent in 1983. Gasp.
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Under some circumstances, the stimulus could backfire. One possible pitfall is that foreign and domestic investors in U.S. Treasury bonds might balk at buying so many more securities. To convince them, interest rates might have to rise, which might perversely worsen the crisis. There might even be a panicky flight from the dollar. So far, the opposite has happened. Scared investors have crowded into "safe" Treasuries and driven their interest rates to astonishing lows. Still, psychology has governed this unpredictable crisis; a sudden shift in sentiment isn't inconceivable.
Even if this unpleasant surprise and others don't materialize, the stimulus remains a stopgap. The present crisis represents a fundamental break in the recent pattern of American economic growth. For the past quarter-century, the economy has advanced on an ever-rising tide of personal borrowing that supported expanding purchases of consumer goods — contributing to U.S. trade deficits — and a housing boom. But lending became reckless, and many households overborrowed. In its simplest terms, the "stimulus" substitutes the federal government's superior credit for damaged private credit.
But this cannot continue indefinitely. Rapid increases in the federal debt — much faster than in recent years — would threaten a further loss of confidence that might prolong today's financial crisis or, someday, trigger a new one. A growing federal debt burden would also compound the problem of paying the staggering retirement costs of aging baby boomers. So: Neither rising household nor government debt provides a plausible foundation for future economic growth.
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