Obama unveils a $33 billion tax-break plan to boost jobs

By Michael A. Fletcher
Washington Post staff writer
Saturday, January 30, 2010; A03

President Obama proposed a $33 billion package of tax breaks Friday aimed at encouraging small businesses to hire new workers, the latest in a string of administration attempts to accelerate job creation.

The proposal would give businesses a $5,000 tax credit for each worker hired in 2010 and subsidize wage increases by reimbursing Social Security tax increases for businesses that expand their payrolls.

"This is a simple, easy to understand mechanism that will cut taxes for more than 1 million small businesses," Obama said, as he unveiled the proposal after touring Chesapeake Machine, an industrial-equipment maker in Baltimore. "It'll give them an incentive to hire more people and a little bit of extra money to pay higher wages, to expand work hours, or invest in their company."

The incentives would be capped at $500,000 for each business, meaning they would mostly benefit small firms. The tax break on pay increases would apply only to workers making $106,800 a year or less.

The proposal is a variation of an idea that Congress rejected a year ago. But with job growth still lagging even as the economy expands, administration officials think the revised proposal is well-timed to encourage businesses to resume hiring.

"The proposal has been improved based on the discussions we have had with everyone from" members of Congress to small-business groups, said Jason Furman, deputy director of the National Economic Council.

Several small-business groups and business leaders that reporters were pointed to by the White House greeted the proposal enthusiastically. "These tax credits are simple and straightforward, and will support small businesses to generate the jobs Americans so desperately need," said John Arensmeyer, chief executive of the Small Business Majority, a California-based organization. "And they'll start doing it now."

But the enthusiasm was not universal. "A well-intentioned tax credit proposal is not going to convince small-business owners to add jobs if they don't have work for those employees to do," said Susan Eckerly, senior vice president of the National Federation of Independent Business.

Timothy J. Bartik, a senior economist at the W.E. Upjohn Institute, a Michigan research organization, and a longtime proponent of tax credits to subsidize job creation, said the White House plan is substantial enough to matter to small firms. He estimated the proposal would create at least 1 million jobs, costing roughly $30,000 per job; the White House did not offer its own estimate.

The proposal comes as Obama is under increasing pressure to do more to create jobs. The federal government estimated Friday that the economy grew at a robust pace in the final three months of 2009, offering further proof that the recession is over. But double-digit unemployment and flat wages remain in the downturn's wake.

"Now's the perfect time for this kind of incentive because the economy is growing but businesses are still hesitant to start hiring again," Obama said.

Lawmakers had been wary of tax breaks for new hires because similar efforts in the past were ineffective and contained loopholes that allowed employers to game the system by firing and then rehiring workers, or cutting wages or work hours only to restore them, in order to harvest the tax credit.

But administration officials say they have built in safeguards intended to thwart such manipulation -- for instance, offering tax breaks only for net hiring increases in 2010 and prohibiting firms that rename themselves or merge from taking advantage of the incentives. They also said they would pay out the tax breaks quarterly, a boon to businesses pressed for operating cash.

The White House has not said how the proposals should be paid for, although officials say the "fiscal room" created by the unexpectedly quick repayment of a large share of the bank bailout funds would make the proposal feasible, even with the nation's projected $1.35 trillion budget deficit for 2010.

The business-wage tax cut is part of a larger mix of initiatives -- including infrastructure investments, home weatherization incentives and lending proposals targeting small business -- that the president has outlined in recent weeks to combat unemployment and make clear to increasingly restless voters that his administration is committed to addressing their creeping economic concerns.

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