President Obama will propose Friday in Baltimore a new business tax credit worth up to $5,000 for every new worker hired this year.
Under the president’s plan, a business could claim a tax credit of up to $5,000 for every net new employee it adds to its workforce this year. If that business hires a worker and fires another, it would be ineligible for this credit.
Senior administration officials said they capped the total credits a business can claim at $500,000 to ensure their proposal mostly helps small businesses.
“The focus is really on small businesses,” said a senior administration official.
The president is also proposing the federal government reimburse businesses for the Social Security taxes they owe on increases in their payrolls this year.
If a small business with 50 employees raises wages by $1,000 for each employee, either through increased pay or hours, the business would receive a tax credit of $3,100 to cover higher Social Security payroll taxes, according to an administration fact sheet.
“It isn’t just about net new jobs, it’s about wages also,” said the official, who added the administration projects these credits will benefit a million businesses.
Provided congressional approval, businesses will be able to claim this credit on their 2010 taxes for any new hire they make during this year.
The tax credits will cost the government $33 billion dollars, according to the White House, citing a Treasury Department estimate.
The president and Congressional Democrats are wrestling with an economy struggling to create jobs, while trying to confront a massive federal deficit.
In this week alone, President Obama called for Congress to temporarily freeze some federal spending to save $250 billion over the next ten years, the Congressional Budget Office forecasted a $1.35-trillion federal deficit for this fiscal year and a $75-billion increase in the stimulus plan’s cost estimate, the Senate approved a measure to raise the debt ceiling by $1.9 trillion, and Democrats have been negotiating billions in new spending to try to catalyze a dormant job market.
While in Baltimore Friday, the president will also address House Republicans who are holding their retreat there.
A tax credit plan may be one of the president’s few economic proposals Republicans may support.
“The only bright spot in President Obama’s latest jobs plan is that his Administration finally acknowledges that lowering the tax burden on small businesses is the most effective way to reduce our nation’s unemployment,” said Rep. Scott Garrett, a New Jersey Republican. “Unfortunately, while this temporary wage subsidy may create a spike in employment, Americans need permanent relief through sustained growth.”
Strongly opposed to the president’s economic agenda, congressional Republicans have been blasting Democrats for their efforts to spend billions more on highway and rail projects.
“We've had enough,” said House Republican Whip Eric Cantor. “The $800-plus billion stimulus bill didn't produce any jobs. Then the president says we've got to freeze domestic discretionary spending. But oh, by the way, let me go and propose $150 billion more before our freeze. None of that makes sense,” he said.
Meanwhile, Senate Democrats are moving ahead with negotiating the details of their latest economic bill. They say it will, along with the stimulus plan, jump-start hiring and upgrade aging transportation infrastructure.
“I think it'll give the Republicans an opportunity to - to work with us,” said Senate Majority Leader Harry Reid. “It'll be so glaringly apparent to the American people if we don't get a few Republican votes to support us that they are not interested in any success to the American if they are continually going to say no.”