Obama to call for $100 billion business tax credit

By Anne E. Kornblut and Lori Montgomery
Washington Post Staff Writer
Sunday, September 5, 2010; 9:01 PM

Under mounting pressure to intensify his focus on the economy ahead of the midterm elections, President Obama will call for a $100 billion business tax credit this week, using a speech in Cleveland on Wednesday to launch what administration officials said was a new policy push.

The business proposal - what one aide called a key part of a limited economic package - would increase and permanently extend research and development tax credits for businesses, rewarding companies that develop new technologies domestically and preserve American jobs.

It would be paid for by closing other corporate tax loopholes, said the official, speaking on condition of anonymity because the policy has not yet been unveiled.

This is not the first time Obama has called for making the credit permanent. But with the economic recovery moving more slowly than the administration had hoped - and Democratic candidates nationwide panicking as the issue threatens their majorities in the House and Senate on Nov. 2 - he is increasingly eager to show he understands the depth of the problem and is trying to act.

Republicans are trying to prove the opposite. Sen. John McCain (Ariz.) accused the administration on Sunday of "flailing around" in its economic policies.

The administration is seeking ways both to boost hiring and undercut Republican allegations that Obama is hurting the business climate. Other measures could be introduced in the months ahead, officials have said.

White House officials insist that the new proposals are not a second stimulus package. Deficit spending has emerged as a potent campaign issue, making any new measures other than tax cuts potentially treacherous.

"The first thing we need to do is extend the tax cuts that are in existence so people have that certainty," McCain said on "Fox News Sunday," referring to the Bush-era tax cuts set to expire in December. The administration would like to extend those tax cuts for 98 percent of families to prevent a tax increase on the middle class, but it has argued that the cuts should expire on family income over $250,000 a year, a move that would hit nation's wealthiest families with higher taxes.

"The point is that the Obama Keynesian on steroids has not worked. The economic policies have failed," McCain said. The economy, especially the collapse of the housing market and stability on Wall Street, was a major factor in his loss to Obama in the 2008 election.

Mark Zandi, the chief economist for Moody's Analytics, has advised both McCain's presidential campaign and congressional Democrats. Zandi agreed that all the tax cuts should be extended; he said that businesses are "flat-out nervous" about the expiring tax cuts and that there is an imperative "to provide some certainty in that."

"I wouldn't raise anyone's taxes in 2011," Zandi said. "I think the recovery is just too fragile and we can't take that chance."

The White House has decided to forgo a broad-based payroll-tax holiday at this point, officials have said. That proposal, which had been part of earlier discussions with key congressional officials, would have been an expensive measure, potentially costing hundreds of billions of dollars. It also could have deprived Social Security of needed cash even as Democrats are accusing the GOP of plotting the program's demise on the campaign trail.

Created in 1981 as a temporary measure, the research tax credit has been extended repeatedly by Congress. The latest extension expired in December, causing unease among many business groups, which have made extending the credit a top priority.

An administration official said Sunday it would cost around $100 billion over the next decade to make the tax credit permanent. The nonpartisan Joint Committee on Taxation estimates that it would cost about $108 billion.

Laura Tyson, a University of California economics professor and member of the president's economic recovery advisory board, said the research and development credit targets a vital part of the U.S. economy, although it might not have as rapid an impact as some other provisions that had been discussed.

"That's where U.S. competitiveness lies: in high technology industries," Tyson said on CBS's "Face the Nation." "We know that the R&D tax credit is an important credit that does affect how much R&D spending business does. And business accounts for something like two-thirds of all R&D spending in the United States.

"So this is important. I don't think this is something that has an immediate - as immediate a job impact as, say, movement on the current tax credits for the unemployed or extending a payroll tax holiday of some sort," she continued. "But I think it's very important in terms of job creation over the longer term. So if we're thinking about growth and long-term good jobs, research is important."

Zandi said on the same program that "the business community is onboard for the R&D tax credits," making its passage possible.

Friday's jobs report showed that the private sector added 67,000 new jobs but that the unemployment rate rose to 9.6 percent from 9.5 percent, lending more urgency to the White House plan to roll out new proposals.

But Obama, who appeared twice in the Rose Garden to address economic developments last week, plans to keep pressing for passage of a package of small business incentives, including further tax breaks and a $30 billion loan fund that would provide easier access to credit. The bill has passed the House but has been hung up by partisan maneuvering in the Senate.

Democratic leaders say they are optimistic that they can win over the single GOP vote needed to push it through when Congress returns to work next week.

Obama is to appear Wednesday at Cuyahoga Community College before an audience of invited guests. He is also scheduled to talk about the economy at a Milwaukee labor festival on Monday and hold a White House news conference on the issue on Friday.

kornbluta@washpost.com montgomeryl@washpost.com

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