Lawmakers and Financial Experts Question Obama's Tax Cuts

Rep. Richard E. Neal (D-Mass.), chairman of the Ways and Means subcommittee on select revenue measures, said the scenario that worries him is that of the employer who lays off thousands of people and then is subsidized for hiring back a few hundred. "My game plan is to be helpful to the administration," Neal said but added that he hopes questionable proposals will be "filtered out through the committee process."

The credit is similar to the New Jobs Tax Credit, a two-year provision that offered subsidies to 1.1 million businesses for hiring 2.1 million workers, according to a report by Timothy J. Bartik, senior economist for the W.E. Upjohn Institute for Employment Research in Kalamazoo, Mich.

The estimated annual cost for the 1977-78 credit was less than $4 billion, Bartik found, or about $13 billion in today's dollars. Obama's version could add about 1.3 million jobs per year, Bartik estimated. But he noted that the proposed credit is significantly smaller than the 1977 version, and, as a result, Bartik wrote, "a smaller wage subsidy would probably lower both budgetary costs and job creation impacts."

Tax experts also warned that allowing companies to deduct recent losses could come at an enormous cost. One senior GOP congressional aide said the number of businesses that could cash in on the break "is potentially frightening."

Zandi said the provision "could have the biggest impact" of any of the business tax measures Obama has proposed "but could also be very costly."

Other potential disagreements include a Democratic effort to provide states with money to relieve Medicaid costs and the strain of providing other services. Republicans are resisting the proposal, saying it would encourage states to expand benefits beyond what they can afford to provide.

Many lawmakers are also eager to add provisions to ease the housing crisis through the stimulus. House Budget Committee Chairman John M. Spratt Jr. (S.C.) and Senate Budget Committee Chairman Kent Conrad (N.D.) are backing a tax credit for first-time home buyers, along with a government subsidy that would lower mortgage rates to 4.5 percent, an idea that has been discussed by Treasury Secretary Henry M. Paulson Jr.

In an interview with CNBC, Obama said he would act soon after taking office to address the housing problem. "Dealing with this foreclosure crisis is something that we've got to do," said Obama, adding that he would announce a mitigation plan "sometime in the next month or two."