Obama to propose $33 billion in tax credits for employers

On Friday in Baltimore, President Obama will aim to jump-start job creation among small businesses with a new $33 billion program of tax credits.

Mr. Obama’s proposal, which Congress must vote upon, would give any company – large or small – a $5,000 tax credit for every net new employee it hired this year. Also, if a company’s total payroll grows faster than inflation (even because of pay raises), the employer would get reimbursed – in the form of a tax credit – for the added Social Security payroll taxes.

The benefits per firm would be capped at $500,000 – meaning that these measures would make the most difference for small businesses.

“This is meant to be a little bit like the ‘cash for clunkers’ program – to give an extra incentive to go out and hire, take someone where you were going to sit on the sidelines for another six months, and do it now,” said a senior administration official on Thursday, who spoke on condition of anonymity.

The two programs, if enacted by Congress, would cut taxes for 1 million small businesses, the US Treasury estimates.

Obama’s proposal is part of an effort to show he’s doing something for Main Street. On Wednesday night in his State of the Union speech, he indicated he would introduce this program. Then on Thursday, he proposed redirecting $30 billion in the Troubled Asset Relief Program (TARP) to community banks, which would lend the money to small businesses. Next week, Obama will be in New Hampshire to talk about more jobs initiatives.

“The economic theory is that the economy has begun to grow, but a lot of businesses are still sitting on the sidelines,” the White House official said.

In 2006, some 119.9 million people worked for companies employing less than 500 people, according to the Census Bureau. In general, that total has grown by several million workers per year. But last year, some economists believe, employment for small businesses fell.

If Congress were to pass Obama’s proposal, it’s not clear where it would get the funds to pay for it. The White House official suggested that since the Treasury will be spending $200 billion less than expected on TARP, there is room for new tax cuts. However, the official stressed, the White House is more than willing to work with Congress.

President Obama had made a similar proposal during his 2008 election campaign. Then, he proposed it for the economic stimulus package that passed last February. But Congress did not include it because of concerns about the potential for fraud.

Now, the White believes that it has resolved those issues and that the effort will attract interest.

“This is a different time in the economy, and the members of Congress understand it,” the official said. “A year ago, the economy was in free fall. We were losing 700,000 jobs a month, so it was hard to understand how a tax incentive to business that was planning to lay off a large number of people would produce jobs.”

Small-business organizations are applauding the concept. “A $5,000 tax credit to a small business is a lot of money,” says John Satagaj, president of the Small Business Legislative Council in Washington.

If Congress passes a version of Obama’s proposal, the Internal Revenue Service will have to implement it with new tax forms. “The more forms, the more complicated it becomes,” Mr. Satagaj says. But his group is still optimistic about the proposal.

“Anything that gives small business some relief is good,” Satagaj says.

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