Obama to Ask Congress to Pass $100 Billion Research Tax Credit

President Barack Obama, focusing on ways to spur economic growth with less than two months to the congressional elections, will urge Congress to permanently extend and expand a research and development tax credit for businesses.

Obama will detail the plan, which would cost about $100 billion over a decade, in an economic speech Sept. 8 in Cleveland, according to two administration officials speaking on condition of anonymity.

It’s just one of several ideas Obama has promised to roll out to encourage hiring. White House economic advisers are also considering 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.

The research tax credit is “very important in terms of job creation over the longer term,” Laura Tyson, an economics professor at the University of California at Berkeley and a member of Obama’s Economic Recovery Advisory Board, said on CBS’s “Face the Nation” program yesterday.

The research credit won’t have “as immediate a job impact as, say, movement on the current tax credits for the unemployed or extending a payroll tax holiday of some sort,” she said.

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

Business on Board

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

Obama’s proposal will run up against a tight congressional calendar and 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 he doubts Obama’s proposals will help Democrats in November’s congressional races.

“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.”

Middle Class

Democratic National Committee Chairman Tim Kaine said on Fox that Democrats are focused on targeting tax credits to small business and middle-class Americans and where they will have the “most likelihood of increasing economic activity.”

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.

Obama 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 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.

Not Enough

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 wants to extend most of the income tax cuts passed under former Republican 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.

“I wouldn’t raise anyone’s taxes in 2011,” Zandi said. “I think the recovery is just too fragile.”

By 2012, 2013 and 2014, “when the economy is off and running, then let’s phase them in and let those tax rates go,” Zandi said, adding that lawmakers need to act soon on the Bush tax cuts.

“The reason why businesses aren’t hiring, the key reason, is because of a lack of confidence,” he said. “They are just nervous, flat-out nervous, and we have to provide some certainty.”

Republican Senator Lindsey Graham of South Carolina said he supports Obama’s efforts to extend the research tax credit.

‘All the Tax Cuts’

“We need to extend all the tax cuts,” he said on NBC’s “Meet the Press” program. “Now’s not the time to raise taxes.”

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 Policy 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; Catherine Dodge in Washington at cdodge1@bloomberg.net.

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