Obama to Propose $100 Billion Permanent Extension of Research Tax Credit

President Barack Obama this week will urge Congress to permanently extend and expand a research and development tax credit to encourage job growth.

Obama will lay out the proposal, which would cost about $100 billion over the next decade, in a Sept. 8 speech on the economy in Cleveland, Ohio, according to two administration officials speaking on condition of anonymity before the announcement.

Obama has promised to roll out “new ideas” to boost growth and spur hiring as he focuses on the economy with less than two months until the November congressional elections.

The Labor Department reported last week that private payrolls climbed 67,000 in August, more than forecast, though the unemployment rate rose to 9.6 percent from 9.5 percent as more people looked for work.

Every president since Bill Clinton has backed a permanent extension of the research and development tax credit, which Congress only temporarily extends because of its high cost.

“The business community is on board for the R-and-D tax credit,” said Mark Zandi, chief economist at Moody’s Analytics, on the CBS “Face the Nation” program. Still, he said Obama will “have to take some of the corporate tax benefits away to pay for it.”

Photographer: Andrew Harrer/Bloomberg

U.S. President Barack Obama. Close

U.S. President Barack Obama.

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Photographer: Andrew Harrer/Bloomberg

U.S. President Barack Obama.

Laura D’Andrea Tyson, an economics professor at the University of California at Berkeley and member of Obama’s Economic Recovery Advisory Board, said on CBS the research tax credit is “very important in terms of job creation over the longer term.” She also suggested a suspension of the payroll tax for businesses that hire new workers would have a more immediate impact.

Election-Year Politics

Obama’s proposal will run up against the congressional calendar as well as election-year politics. The Senate is scheduled to return to Washington Sept. 13 and the House the next day. Lawmakers will be at work for about three weeks before leaving again to campaign.

Republican Senator John McCain of Arizona said today he doubts Obama’s proposals will help Democrats in the congressional elections.

“They are just flailing around,” McCain, his party’s 2008 presidential nominee, said on the “Fox News Sunday” program. “If we had done this kind of thing nearly a couple of years ago we’d be in a lot better shape.”

Obama and his economic team must balance the proposals against their own projections of a budget deficit that will hit a record $1.47 trillion this year and $1.42 trillion in 2011.

Infrastructure

White House economic advisers are also considering additional measures, including more tax breaks for small businesses and new spending on infrastructure, according to congressional aides familiar with the discussions who spoke on condition of anonymity because talks are preliminary.

In addition to new measures that would spur hiring, the president last week again urged Congress to pass legislation to help small businesses, including $12 billion in tax breaks and $30 billion worth of aid to free up credit. The House has already passed the bill. Senate Republicans blocked the legislation before lawmakers left for their summer recess.

Todd McCracken, president of National Small Business Association, said today on CNN’s “State of the Union” the bill would free up credit for small companies at a low cost to the government. Such companies need access to credit to be able to “exploit the opportunities” to create new jobs, he said.

‘Pretty Grim’

“It’s pretty grim out there,” McCracken said. “A lot of small businesses do see some opportunities, but most of them are kind of in a stagnant or even a downward growth piece right now.”

AFL-CIO President Richard Trumka, also on CNN, said more lending to small businesses and extending the research tax credit may not be enough. The U.S. needs to spend on long-term infrastructure projects to move the economy forward, he said.

Obama also is seeking an extension of most of the income tax cuts passed under former President George W. Bush while letting the breaks expire for households making more than $250,000 annually. Republicans want to extend all the tax cuts and some Democrats have indicated they may resist letting the top rates rise.

Tax Increase

“This is the wrong time to increase taxes on anybody,” McCracken said. Though the tax for those earning more than $250,000 a year affects only a “fraction” of small businesses, those are the more successful ones that are more likely to be adding jobs, he said.

Trumka said the “vast majority” of new jobs are being created by the “other 97 percent” of small businesses that wouldn’t be affected by letting the highest earners’ tax cuts expire.

Extending 2001 and 2003 tax cuts for individuals earning less than $200,000 annually and families earning less than $250,000 -- about 98 percent of all taxpayers -- would cost $2.2 trillion in forgone revenue over the next decade, according to an analysis of government data released Sept. 2 by the Pew Economic Group.

Extending all of the tax cuts, including those for the wealthiest Americans, would cost $3.3 trillion over the same period, Pew’s analysis found.

To contact the reporters on this story: Nicholas Johnston in Washington at njohnston3@bloomberg.net; Julianna Goldman in Washington at jgoldman6@bloomberg.net

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