Obama to Seek New Payroll Tax Cut for Small Businesses

President Barack Obama will propose cutting payroll taxes for small businesses as part of a more than $300 billion plan to re-ignite the economy and spur hiring, according to an administration memo obtained by Bloomberg News.

The business tax cut will be part of a package of measures Obama will lay out in a speech to Congress tonight, along with assistance for the long-term unemployed, spending for building roads and bridges and repairing schools, and aid to states to keep teachers and emergency workers on the job.

Obama’s advisers also have discussed seeking a deeper cut in the payroll tax for workers, to three percentage points from the temporary two-point cut in effect now, according to a person familiar with the discussions.

Obama would pay for the additional spending by closing corporate tax loopholes and raising taxes on high-income earners. Next week, he’ll send a plan on how to offset the spending to the special 12-member congressional committee charged with coming up with $1.5 trillion in deficit cuts.

With his address tonight to a rare joint session of Congress on jobs, the top concern of voters as the 2012 election campaign gets under way, Obama is seeking to frame choices for voters as much as present a plan for lawmakers.

Republican Resistance

He’ll be proposing his latest stimulus plan in the House chamber, where the Republican majority has signaled opposition to new spending. As job growth has stalled and the unemployment rate hovers above 9 percent, Obama’s job-approval ratings are scraping new lows as public doubts about his stewardship of the economy rise.

“The president has had a difficult summer,” said Democratic political consultant Tad Devine, a senior strategist for the Al Gore and John Kerry presidential campaigns. “All of the polling is heading in the wrong direction. He needs a circuit breaker.”

White House spokesman Jay Carney said earlier today the legislation incorporating both economic growth and job-creation sections, along with plans on how to pay for the package, would be sent to Congress early next week. He said he didn’t know immediately who would file the measure on behalf of the administration.

Waiting for Reaction

White House officials say they expect congressional Republicans to resist much of the president’s jobs package.

House Speaker John Boehner was noncommittal about whether Republicans would support the proposals previewed so far, including an extension of jobless benefits set to expire at the end of the year.

Republicans will “listen and wait for what the president has to outline,” Boehner told reporters after a meeting with members of his party’s caucus. “I am going to be looking for where is the common ground.”

Obama’s advisers expect the tax-cut proposals to have the best chance of passage. The emphasis on payroll tax reductions reflects the administration’s concern over consumer spending, which accounts for 70 percent of the economy.

The president has repeatedly called for an extension of the cut in the employee portion of the tax. Without the extension, the tax, which funds Social Security, would return to 6.2 percent from 4.2 percent for employees. Employers pay 6.2 percent. Cutting it by an additional percentage point for employees would increase the cost of the tax cut from $120 billion to $180 billion over one year.

Hiring Incentive

Obama also will propose trimming the tax for small businesses to encourage hiring, according to the administration memo. The amount of the cut or details about what entities it would apply to weren’t specified.

There is no commonly accepted definition of “small business” across the government and especially in tax policy. Sometimes, the term is used to mean all companies that don’t pay the corporate income tax.

Another definition, used by Obama in a small-business capital gains exclusion proposal, excludes some industries.

House Republicans, who are considering a 20 percent deduction for small business, are discussing setting the threshold at 500 employees. For contracting purposes, the Small Business Administration has definitions that rely on revenue and employee thresholds, depending on the industry.

Wider Cuts

Senator Orrin Hatch of Utah said an employer-side payroll tax cut for small businesses only would be a mistake.

“If he wants to really create jobs, he ought to do it across the board,” said Hatch, the top Republican on the Senate Finance Committee, which has jurisdiction over tax policy.

Hatch said he wasn’t sure whether a similar proposal passed last year had worked. That law, which effectively eliminated the employer-side payroll tax for hiring long-term unemployed workers, was written by Hatch and Democratic Senator Charles Schumer of New York.

The speech will offer Obama a chance to both make a case to the public for his proposals and prepare the way to blame Republicans for inaction.

“He can later say they weren’t passed because of obstruction,” Devine said. “That’s an easy case for people to understand.”

In the run-up to the speech Obama and his aides laid the groundwork for their case that Republicans are also accountable for the economy, arguing that the measures he will offer have had bipartisan support in the past. “The only reason some of these people may not support it now is because of the politics that’s going on,” White House Chief of Staff William Daley said on “Good Morning America.”

‘An Earful’

Carney predicted yesterday that members of Congress would “get an earful” from constituents if they don’t act on the package before the lawmakers’ end-of-year recess. He said today he was “pretty sure” Obama would be consulting lawmakers, whom he didn’t identify, by telephone before tonight’s speech.

Republican leaders criticized early reports of the jobs plan, saying it resembled Obama’s $830 billion economic-stimulus package of 2009. That legislation also combined tax cuts, infrastructure spending and aid to state and local governments, and Republicans say it didn’t work.

“If government spending were the answer, we’d be in the middle of a boom by now,” said Senate Republican Leader Mitch McConnell of Kentucky. “We’ve been on a spending spree for the last two years.”

Cantor Open

House Majority Leader Eric Cantor yesterday left open the possibility he might accept Obama’s proposal to maintain the payroll-tax cut.

“It is something I supported in the past” and “will be part of the discussions ongoing,” the Virginia Republican told reporters in Washington.

Other Republicans expressed reservations.

Alabama Senator Jeff Sessions, the top Republican on the Senate Budget Committee, said extending the payroll-tax cut would be “a difficult thing” because “you don’t pay it if you’re not working.”

U.S. stocks fell, after the biggest gain in two weeks for the Standard & Poor’s 500 Index, as investors waited for Obama to discuss the economy. Treasuries rose, pushing 10-year note yields toward a record low, as investors sought refuge on concern U.S. and European officials aren’t moving fast enough to relieve stress in global financial markets.

The S&P 500 slipped 0.3 percent to 1,194.61 at 12:02 p.m. in New York. Yields on 10-year notes fell five basis points, or 0.05 percentage point, to 2.01 percent at 11:54 a.m. in New York, after earlier dropping seven basis points, according to Bloomberg Bond Trader prices.

Poll Numbers Falling

Public opinion of Obama as well as Congress has plummeted to new lows since a partisan fight in July and August over raising the government’s debt limit that took the country to the edge of default.

Obama’s monthly job-approval rating in a Gallup Poll dropped to the lowest of his presidency, with 41 percent of U.S. adults saying they approved of his overall performance.

To contact the reporters on this story: Peter Cook in Washington at pcook6@bloomberg.net Mike Dorning in Washington at mdorning@bloomberg.net

To contact the editor responsible for this story: Mark Silva at msilva34@bloomberg.net

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