Washington: President Barack Obama will propose a $33 billion tax credit to encourage small businesses to hire workers and raise wages in 2010, an administration official said on Thursday.
Democrat Obama will announce the plan on Friday at a small business in Baltimore en route to speak to a retreat there for House of Representatives Republicans, a bipartisan mission he is undertaking as he tries to rally from the damage done to his popularity by 10% unemployment.
The plan was previewed by Obama in the State of the Union address, where he made jobs priority number one. It will grant a $5,000 tax credit for every net new worker hired in calendar 2010. The amount will be capped at $500,000 per firm to make sure that the bulk of the benefits go to small businesses.
The official said the proposal had much in common with other plans being discussed on Capital Hill and the White House was ready to work with both parties to “get something done.”
The House of Representatives approved a $155 billion jobs bill in December, the Senate is considering its own version, and Obama used his annual State of the Union address on Wednesday to call for a new jobs bill.
A shocking win last week by an upstart Republican in an election to the U.S. Senate in traditionally Democrat-dominated Massachusetts has jolted the White House into concentrating its message on Obama’s strategy to boost jobs.
In addition to the jobs credit, firms increasing wages or hours for their workers will be reimbursed for the social security payroll taxes they pay on the real increase in their payrolls. This measure is included in the $500,000 cap to make sure the benefits stay focused mostly on small businesses.
So-called payroll tax credits are criticized by economists because it is hard to discriminate between jobs created due to the incentives, and hiring that would have happened anyway.
The administration official said even though this might be the case, it was still worth doing.
“Not every single tax credit will go to someone who created a job because of this, but we think that is good. Small businesses need tax cuts,” the official, who spoke on the condition of anonymity, told reporters in a conference call.
Obama will propose to pay for the plan with savings from a $700 billion bank bailout fund, the official said, but made plain that this would be up to the Congress to decide.
Expected losses on the Troubled Asset Relief Program, or TARP, have fallen by some $200 billion thanks to the improved health of banks, and the White House says this has created budget “space” to ease unemployment, now at a 26-year high.
The $155 billion House jobs bill also included a provision for $75 billion of that money to come from TARP savings.
In addition, Obama wants to use a further $30 billion from TARP to aid the flow of credit through community banks to small businesses. The White House said there would be more details on this aspect of Obama’s job strategy in the coming weeks.