I'm looking a impacts from investment tax credits and need an explanation of impact for a-i below.
Let's say I'm a lobbyist and I find out Congress is considering reinstating a 10% investment tax credit in order to stimulate the economy. The bill would apply to purchases of all new capital equipment, so, it would increase the budget deficit by $100 billion per year on a static basis (i.e., before considering any feedback attempts). As a lobbyist for each of these companies, what position should I take and why? (a) General Motors, (b) Disney, (c) Exxon Mobil, (d) Georgia Pacific, (e) Citigroup, (f) Toyota, (g) Merck, (h) Capital One (subprime consumer loans), (i) Toll Brothers Builders.
Please find the attached solution.
The Capital Investment Tax Credit is used to attract and grow capital-intensive industries. It is an annual credit, provided for up to twenty years, against the corporate income tax. Eligible projects are those in designated high-impact portions of the following sectors: biomedical technology, financial services, information technology, silicon technology, and transportation equipment manufacturing. Projects must also create a minimum of 100 jobs and invest at least $25 million in eligible capital costs. Eligible capital costs include all expenses incurred in the acquisition, construction, installation, and equipping of a project from the beginning of construction to the commencement of operations.
a) General Motors:
During 1950's GM was the largest corporation ever in the United States, in terms of its revenues as a percent of GDP. General Motors was named one of the 100 Best Companies for Working Mothers in 2004 by Working Mothers magazine. Due to its highly compensated workforce GM has the highest health care and labor costs in the industry and some analysts have criticized the company for this. Critics have suggested that progressive blurring of well-defined brands has been a large contributor the late 20th and early 21st century market failures of GM.
In April 2005, General Motors posted a US$1.1-billion loss, for the first quarter of that year. Its debt was also downgraded to junk bond status. GM announced plans to cut 25,000 jobs in the United States, and included plans to shut down one of the Oshawa, Ontario, plants by 2008. Despite these financial drains, GM continues to offer a substantial dividend, which with the recent declines of share price produces a very attractive yield. Cutting this dividend might severely impact the share price, the likely reason that it is continuing.
So as a lobbyist, the investment tax credit given to General Motors should be utilized to run those plants which are supposed to be closed down in the year 2008.
b) Disney: Disney is expected to save at least $2 million by moving production from Baltimore to ...
This solution defines and summarize investment tax credits.for General Motors, Disney, Exxon Mobil, Georgia Pacific, Citigroup, Toyota, Merck, Capital One, and Toll Brothers Builders.