U.S. Chamber Issues Study Outlining Why Temporary Relief from Cancellation of Indebtedness Taxes Is Key To Spurring Growth

Former Clinton Under Secretary of Commerce for Economic Affairs Asserts This Would Help Free Up Credit, Supporting Growth and Employment

Washington, D.C. – The U.S. Chamber of Commerce today released a study by renowned economist and former Clinton Under Secretary of Commerce for Economic Affairs, Dr. Everett M. Ehrlich, highlighting the significant stimulative effects that a temporary waiver of business' income tax related to the cancellation of indebtedness would have, and asserted that it was uniquely positioned to address both the "real" and financial problems plaguing the economy.

"Ehrlich's study proves that a temporary waiver of the income tax related to the cancellation of indebtedness would help businesses manage through the recession, save jobs, and get the economy moving again," said Bruce Josten, executive vice president for government affairs at the U.S. Chamber of Commerce. "Ehrlich concludes that banks will not begin to lend again in earnest, and therefore the economy will not grow again, until companies and financial institutions can reduce the levels of debt on their balance sheets."

Ehrlich explains that a major facet of the current recession is the "liquidity crisis" in which banks, having suffered enormous losses and concerned there could be more, are strapped for capital and afraid to lend. In addition, the debts businesses owe to banks have plummeted in value as the economy has worsened.

"This poses a unique opportunity," says Ehrlich. "Absent the current disincentives in the tax system, businesses could use their cash to buy back their debts as a fraction of their face value. This would have a series of significant benefits."

By temporarily suspending the income tax businesses pay when they purchase their own debt at a discount, Congress would remove a major impediment to stimulating the economy. Ehrlich asserts that the benefits of this temporary suspension would include:

• Freeing up cash for businesses to hire new employees and invest;
• Improving banks' balance sheets;
• Creating a more liquid credit market and adding to confidence;
• Making the job of the TARP rescue program easier and more efficient; and
• Protecting more businesses from defaults and bankruptcies, allowing them to preserve and create jobs in their own companies and economy-wide through capital expenditures.

"A temporary suspension of this income tax would help give companies the boost they need in the midst of such economic uncertainty," said Ehrlich. "This alone could lead many companies to restructure their balance sheets and reposition for positive growth, with likely tens of thousands of jobs across the country in the balance."

The U.S. Chamber is among 35 major trade associations, representing all sectors of the economy and tens of millions of employees, strongly encouraging Congress to include this temporary tax relief in the stimulus bill (www.uschamber.com/TaxRelief).

Dr. Everett M. Ehrlich, one of the nation's leading business economists, served in the Clinton Administration as Under Secretary of Commerce for Economic Affairs – the principal economic policy official for Commerce Secretaries Brown and Kantor and chief executive of the nation's statistical system. He also served as Vice President for Economic and Financial Planning and Strategic Planning at Unisys Corporation, as Senior Vice President and Research Director of the Committee for Economic Development, and as Assistant Director of the Congressional Budget Office. He is the author of two critically-acclaimed novels: Big Government (1998) and Grant Speaks (2000). Ehrlich's firm, ESC Company, combines economic analysis, business development and communications skills to solve a wide range of business problems.

To view Ehrlich's study, click here

The U.S. Chamber is the world's largest business federation representing more than 3 million businesses and organizations of every size, sector, and region.

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