Obama unveils more stimulus, tax breaks for business

With Democrats facing dismal prospects in the November elections, the party is weighing President Barack Obama's role in the midterms.
By Lori Montgomery
Washington Post Staff Writer
Wednesday, September 8, 2010; 2:42 PM

President Obama argued personally Wednesday against extending the Bush-era income tax cuts for the nation's wealthiest families even for a year or two - a message aimed at wavering Democrats who have been swayed by arguments that the economy is too weak to raise anyone's taxes.

In a speech in Cleveland, Obama restated his long-held position that, while tax cuts for the middle class should be extended, the nation cannot afford to extend cuts for the wealthiest 2 percent of families.

"We should not hold middle class tax cuts hostage any longer," Obama said, according to prepared remarks. "We are ready, this week, to give tax cuts to every American making $250,000 or less. For any income over this amount, the tax rates would go back to what they were under President Clinton. This isn't to punish folks who are better off - it's because we can't afford the $700 billion price tag."

Obama did not threaten to veto any compromise which extends the upper-bracket cuts, a position that has gained ground in recent weeks among moderates in both the House and Senate. But congressional sources said in advance of the speech that the president would try to stiffen Democratic spines in expectation of a showdown over income tax rates before the November midterm elections.

Enacted in 2001 and 2003, the tax cuts were written to expire this year. Republicans want to extend them all, but Obama has long argued that the cuts should be extended only on family income under $250,000 a year.

In addition to restating his position on the tax cuts, Obama was expected Wednesday to officially unveiled more than $180 billion in fresh spending and business tax breaks - aimed at boosting both the nation's economic recovery and the political prospects of congressional Democrats facing the wrath of recession-weary voters in November.

But it's not clear whether the provisions - which White House spokesman Robert Gibbs insisted Tuesday do not amount to another stimulus package - can accomplish either goal.

Economists, business groups and tax lobbyists said they are not enthusiastic about the job-creating potential of expanding an existing tax credit for domestic research and permitting firms to write off 100 percent of spending on new plants and equipment in 2011.

"I think they're helpful on the margin to the recovery. But they're not a game-changer," said Mark Zandi, chief economist at Moody's Analytics and a key architect of Obama's first stimulus package. Coupled with Obama's plan to boost spending on transportation, Zandi said, the tax breaks "a year from now might create tens of thousands of jobs" - a drop in the bucket compared with the 7.6 million jobs lost during the recession that began in December 2007.

Politically, the provisions could be equally ineffective, some Democrats said. Because the details are sketchy, vulnerable Democrats may find it difficult to campaign on them. Meanwhile, some Democrats questioned whether voters would be able to distinguish between the new proposals - which the White House vows will not increase the nation's soaring budget deficit - and last year's $814 billion stimulus package, which voters tend to think increased deficits without improving the economy.

"It depends on how it's spun," said Pennsylvania Gov. Edward G. Rendell (D), whose state is a critical bellwether this year, with a governor's race, a high-profile Senate race and a dozen competitive House races that will help determine whether Democrats retain control of Congress.

"The president has to attempt to attack this problem and attack it now," Rendell said. "Is this a little too sophisticated for the voters to get? I'm not sure. But it's better than nothing."

Neither House Speaker Nancy Pelosi (Calif.) nor Senate Majority Leader Harry M. Reid (Nev.) has pledged to bring Obama's ideas to a vote when Congress returns to work next week; aides blamed the short work period before the election and expected Republican obstructionism. And while both the proposed business tax breaks have long been championed by conservatives, congressional Republicans said they would not support Obama's plan to cover the cost by raising taxes on multinational corporations and oil and gas companies.

"Business investment incentives sound fine, but will they be paid for in a way that hurts job creation?" Sen. Charles E. Grassley (Iowa), the senior Republican on the Senate Finance Committee, said in a statement. "If the offsets for this new package are other tax increases, then it's a non-starter."

Over the past two weeks, as the nation's economic outlook darkened substantially and the unemployment rate ticked up to 9.6 percent, panicky Democrats criticized Obama for doing too little to show voters that he is focused on their No. 1 priority. The White House scrambled to respond, and Obama will publicly present the results Wednesday during a speech in Cleveland - the site of an economic address two weeks ago by House minority Leader John A. Boehner (Ohio).

Administration officials hope to contrast Boehner's speech - which contained no new prescriptions for rebuilding the U.S. economy - with Obama's "long-term vision for the future," as one briefing paper put it. That vision includes:

l A six-year reauthorization of the federal transportation act that would refocus investments on high-speed rail, consolidate more than 100 funding streams and create an infrastructure bank to attract private investment to projects of regional and national significance. Administration officials have declined to say how much the reauthorization would cost or how it would be paid for, but they pledged to immediately increase transportation investments by $50 billion and to cover the cost by closing tax breaks for oil and gas companies.

l An expansion and permanent extension of the research tax credit, which rewards companies for doing research domestically and preserving American jobs. The credit, which is claimed primarily by big tech companies and other large corporations, expired in December. Making it permanent would cost about $100 billion over the next 10 years.

l An expansion and extension of bonus depreciation for businesses that make major investments between Wednesday and December 2011. While businesses were able to write off 50 percent of investments last year, Obama's proposal would increase the write-off to 100 percent in 2011. Administration officials estimate that would let companies to keep $200 billion over the next two years. Most of that cost would be recovered in future years when no write-off is taken, reducing the 10-year cost of the proposal to $30 billion.

The White House has declined to say how many jobs the proposals would create or precisely how they would be paid for, noting that the president's February budget request contains more than $300 billion in potential options. But business groups and tax lobbyists said the threat of higher taxes on some companies - coupled with Obama's plan to let the top individual tax rates rise to Clinton-era levels in January - will make the proposals a tough sell among congressional Republicans and business leaders.

"I've got to think Republicans in the Senate look at that and go 'DBA' - 'Dead Before Arrival,' " corporate tax lobbyist Kenneth J. Kies said.

But the proposal could also hold some land mines for Republicans, analysts said. As president, George W. Bush repeatedly proposed to expand business depreciation, and business groups have long called for a permanent research credit.

"It's going to be very interesting to find out whether the Republican Party can take 'yes' for an answer," said the Brookings Institution's William Galston, a domestic adviser in the Clinton White House. "If the president is making proposals that are fully consistent with what the opposition party has been saying for a long time, then I think Republicans are running a risk if they just say no."

Staff writers Paul Kane and Brady Dennis contributed to this report.

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