May 16, 2012
By ROBB MANDELBAUM
In a bid to retake the initiative on small-business policy, President Obama Wednesday is expected to propose a 10 percent tax credit tied to new hiring. But the policy appears designed as much to draw a political distinction as to generate new jobs. In describing the proposal, which Mr. Obama will flesh out in a visit to a Washington-area small business, the administration drew a sharp contrast with a Republican small-business tax cut that passed the House last month, which the White House contends is too tilted toward the wealthy.
Under the White House proposal, which the president previewed in a video address over the weekend, a company would get credit against income taxes worth up to 10 percent of the increase in total wages in 2012, which could come either in the form of salaries for new hires or raises. A company that increased its payroll by $4 million would see a $400,000 income tax credit.
The tax credit is capped at $500,000 to make it more valuable to smaller companies. And the White House specifically targets middle-income earners by limiting the proposal to the top wage that is subject to Social Security tax, $110,100. “Unlike the House Republican proposal,” the White House said in a news release outlining the tax, “the president’s proposal ensures that companies that offer raises only to already well-paid executives would be ineligible for the tax relief.”
The Republican bill allows companies with fewer than 500 employees to deduct 20 percent of their income in 2012, though the deduction is limited to half of cash wages paid to employees. In its statement, the White House said that the Republican bill “would cut taxes of hedge fund managers, law partners and many of the wealthiest Americans regardless of whether they employed or hired a single worker.” An analysis by the Tax Policy Center estimates that almost half of the benefit of the tax cut would go to people earning more than $1 million.
House Republicans have countered that their measure, as the majority leader, Eric Cantor, put it, “puts more money into the hands of small-business owners so they can reinvest those funds to retain and create more jobs and grow their businesses.” The nonpartisan Congressional Joint Committee on Taxation has disputed this claim, but it’s not clear that the president’s proposal would add many jobs either — it could simply reward companies that planned to increase payroll anyway.
Nor is it clear that the president’s proposal will win over Republicans in Congress, or their small-business allies. Kevan Chapman, a spokesman for the National Federation of Independent Business, the conservative advocacy group, said in an e-mail that the tax credit is “not a big help to small businesses that are struggling or treading water.” Rather, he said, “our members are mostly concerned about the threat of rates going up and some of the most popular tax-extenders going away at the end of the year. That’s what the president and Congress need to work on.”
In fact, the president also plans to propose extending through 2012 one of the incentives on the N.F.I.B.’s agenda: the special 100 percent bonus depreciation for 2011 that was signed into law as part of the deal to extend the Bush tax cuts. Bonus depreciation is broadly popular, and this part of the president’s proposal may have a better chance of becoming law.