The Obama administration on Friday proposed a $5,000 business tax credit for each new net hire this year, capped at $500,000 per company. The benefits, part of a $33 billion package, would be felt most by small businesses.Speaking in Baltimore the President also said companies would get a tax break for raises. "If you raise wages for employees making under $100,000, we'd refund your payroll taxes for every dollar that you increase those wages faster than inflation," Obama said. The moves could cut taxes for a million small business, Obama said, although he did not support this claim in his presentation.
The program may face two problems. First, most small businesses still have more trouble getting credit than most successful large companies, and companies that can't grow quickly may defer adding new positions, despite the tax enticement. It's hard to persuade a company to add workers it doesn't believe it needs.
Second, large federal programs are hard to administer, particularly when they involve hundreds of thousands of businesses and million of employees. One criticism of Obama's $75 billion plan to help people keep their homes is the complex paperwork that banks and mortgage holders had to negotiate. The same held true with the Cash for Clunkers program, when car dealers paid incentives to customers long before the U.S. reimbursed the dealers.
Unemployment is still the economy's most acute problem. The $787 billion stimulus package could not keep the jobless rate below 10%, and the Congressional Budget Office says that number won't fall before the middle of 2010. The U.S. has proved unable to turn the employment tide entirely and a jobless recovery could be undermined by slow consumer spending, with millions out of work.
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