Obama to unveil new tax breaks to spur jobs growth, hike wages

Washington Post Staff Writer
Thursday, January 28, 2010; 11:05 PM

In an effort to spur job creation, President Obama plans Friday to unveil a $33 billion package of tax breaks aimed at encouraging businesses to hire workers and give employees raises.

The proposal would provide 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.

The tax breaks would be capped at $500,000 a business, meaning that they would mostly benefit small firms, according to senior administration officials who briefed reporters on the plan. The tax break on pay increases would apply only to workers making $106,800 or less.

Obama is scheduled to announce the plan during a visit to a small business in Baltimore.

With the nation's unemployment rate at the highest level in a generation even as the economy begins to recover from a deep recession, the tax breaks are intended to "give a little extra incentive" for businesses to hire workers, said a senior administration official who spoke on condition of anonymity to brief reporters on the plan in advance of the president's announcement.

The proposal is also intended to give a political boost to Obama, who has been under pressure to do more to create jobs. Administration officials have said for months that the president's plans to revamp health care, foster development of clean energy and boost education funding are aimed at the nation's long-term economic growth.

But with unemployment and flat wages lingering as problems even as the larger economy begins to heal, the president and his allies in Congress have been searching for ways to accelerate job creation and wage growth.

The president's plan is similar to several proposals circulating on Capitol Hill and is estimated to benefit more than 1 million businesses. The administration did not offer an estimate of the number of jobs the tax breaks would create.

A more modest tax break for hires proposed by Obama as part of the $787 billion economic stimulus package was rejected by Congress last year, in part because of concerns that businesses could "game" the system by laying off workers before hiring new ones or cutting wages only to raise them later for a tax break.

But administration officials say they have built in safeguards intended to thwart such manipulation, by, among other things, offering tax breaks only for any net hiring increases in 2010 and by prohibiting firms that rename themselves or merge from being eligible.

The White House has not decided how to pay for the initiative, although officials say the "fiscal room" created by the unexpectedly quick repayment of some 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 the president has outlined in recent weeks to combat unemployment and make clear to increasingly restless voters that his administration is committed to addressing the creeping economic fears of the nation's middle class. In his State of the Union address Wednesday and a jobs speech a month earlier, Obama promoted small-business tax breaks, infrastructure spending and home weatherization as areas where the federal government could most quickly encourage the creation of sustainable jobs.

Obama is expected to announce the tax breaks before addressing House Republicans, who are holding a policy conference in Baltimore. The Republicans have almost unanimously opposed the bulk of Obama's economic policies, although they are strong advocates of tax breaks to create jobs.

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