Factbox: Obama’s $33 billion in tax credits for new jobs, raises

WASHINGTON (BestGrowthStock) – President Barack Obama on Friday proposed tax credits estimated at $33 billion to persuade small businesses to hire workers, give them raises and accelerate jobs growth.

The program, which administration officials likened to the “cash for clunkers” car sales incentive or the first time homebuyer tax credit, is designed to provide firms an incentive to move more quickly on hires by reducing payroll tax costs.

Following are key details of the proposal:

* Employers would receive a payroll tax credit of up to $5,000 for every net new employee they hire in 2010. The credit would be administered off of increases in an employer’s unemployment insurance wage base associated with new hiring and would be equal to 72 percent of the wage base increase up to $5,000 for each new worker. Thus an employer could get the whole $5,000 credit even if the additional worker only earns $7,000 a year — a level that clearly implies part-time work.

* The proposal also allows businesses to claim tax credits for pay raises. They will receive a bonus 6.2 percent tax credits on aggregate wage increases in excess of inflation, helping to offset the added costs for the Social Security payroll taxes they would pay on those higher wage rates. The bonus would be calculated off the Social Security payroll tax base, so firms would not get credit for increasing wages for employees making more than the maximum taxable wage of

$106,800.

For example, a firm with 50 employees that provides each worker with a $1,000 real wage increase in 2010 would get a $3,100 tax credit.

* The total benefit from these credits will be capped at $500,000 per firm, to ensure that the majority of the benefit goes to small businesses. Nonprofit entities will be eligible for the credit, while new start-up firms can receive up to a $2,500 credit per new hire.

* Firms will be able to claim the credit on a quarterly basis instead of only once a year as in previous programs in the 1970s, which will aid in corporate profit and cash-flow statements.

* The proposal has anti-abuse provisions to prevent employers from “gaming” the system. Businesses that later reduce employment or payrolls in 2010 would be ineligible for both the $5,000 credit and the wage bonus. It would deter the replacement of full-time workers with more part-time workers by limiting a firm’s maximum jobs credit amount to 25 percent of the increase in a firm’s Social Security wage base.

* The program does not have a stated cap but is estimated to cost about $33 billion, according to a White House fact sheet. A good chunk of that cost would have to come from credits for real wage increases. If it were all to be spent on new hires, it would be impossible to consume the full amount in a year.

At $5,000 per new hire, the whole $33 billion would translate to about 6.6 million jobs — a level of job growth virtually impossible in the current economic environment. Adding that many jobs in a year would require the economy to add some 550,000 jobs a month. Even in the boom year of 2005, peak monthly job growth was in the 300,000 range.

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(Reporting by David Lawder; Editing by James Dalgleish)

Factbox: Obama’s $33 billion in tax credits for new jobs, raises