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Obama calls for new stimulus in the form of small-business tax breaks

Tax breaks would refund 10 percent of the cost of new hiring or wages, up to a total of $500,000 next year. (LARRY DOWNING/REUTERS)

President Obama made a fresh call Tuesday for another round of economic stimulus, proposing to spend more than $25 billion to offer tax breaks to companies to hire workers or pay them higher salaries.

The measure is Obama’s first proposal aimed at addressing the still-weak economy since his reelection and an acknowledgment that though it is no longer a political threat, the nation’s unemployment rate of 7.9 percent remains a significant problem.

The tax breaks would target small businesses and refund 10 percent of the cost of new payroll — in the form of new hiring or new wages — up to a total of $500,000 next year.

“This credit would help nearly 2 million small businesses and is focused on middle-class workers and small businesses,” officials said in a statement.

The proposal appeared in the president’s February 2013 budget request this year and, at a cost of about $30 billion, was rejected by Republicans. It appeared anew in a statement released early Tuesday calling on Congress to immediately extend tax cuts for middle-class earners that are set to expire at the end of the year.

Obama is scheduled to gather with more than a dozen small-business owners Tuesday at the White House as part of a campaign to pressure Republicans to embrace his policies.

The small-business tax-break idea is significant because it is the first time since the election that the president has specifically come out for a new policy that would seek to provide additional government support for the economy next year.

Obama has been under pressure from some Democrats and economists to renew the payroll tax cut that has been a hallmark of his economic policy for the past two years. The White House has said the payroll tax could be discussed as part of the negotiations but has been noncommittal about whether it should be renewed.

The hiring subsidy would have a smaller impact than renewing the payroll tax cut but still would have a “modest” effect on economic growth, economists say.

Obama also called Tuesday for allowing companies to deduct the full cost of investments from their taxes for another year — a proposal that would allow companies to save $50 billion next year on taxes, though independent budget analysts say the final cost would be only about $5 billion.

The last time the country had a similar proposal to the tax subsidy was during the Carter administration, according to the Tax Policy Center. Research by the Labor Department found that few firms knew about the tax policy, but those that did increased employment notably.

“An incremental jobs credit could be a cost-effective way of raising employment in the short run,” the nonpartisan center said in a report this year. The effectiveness of any jobs subsidy depends . . . on how employers perceive its potential benefits when making hiring decisions.”

Zachary A. Goldfarb is policy editor at The Washington Post.
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