UPDATE 1-Obama to propose $33 bln tax credit to create jobs

* Tax credit of $5000 for every net new job created

* Incentive to boost wages and increase hours worked

* Funding could come from bank bailout fund savings
(Updates with details, background; adds byline)

By Alister Bull

WASHINGTON, Jan 28 (BestGrowthStock) – President Barack Obama will
propose a $33 billion tax credit to encourage small businesses
to hire workers and raise wages in 2010, an administration
official said on Thursday.

Democrat Obama will announce the plan on Friday at a small
business in Baltimore en route to speak to a retreat there for
House of Representatives Republicans, a bipartisan mission he
is undertaking as he tries to rally from the damage done to his
popularity by 10 percent unemployment.

The plan was previewed by Obama in the State of the Union
address, where he made jobs priority number one. It will grant
a $5,000 tax credit for every net new worker hired in calendar
2010. The amount will be capped at $500,000 per firm to make
sure that the bulk of the benefits go to small businesses.

The official said the proposal had much in common with
other plans being discussed on Capital Hill and the White House
was ready to work with both parties to “get something done.”

The House of Representatives approved a $155 billion jobs
bill in December, the Senate is considering its own version,
and Obama used his annual State of the Union address on
Wednesday to call for a new jobs bill.

A shocking win last week by an upstart Republican in an
election to the U.S. Senate in traditionally Democrat-dominated
Massachusetts has jolted the White House into concentrating its
message on Obama’s strategy to boost jobs.

In addition to the jobs credit, firms increasing wages or
hours for their workers will be reimbursed for the social
security payroll taxes they pay on the real increase in their
payrolls. This measure is included in the $500,000 cap to make
sure the benefits stay focused mostly on small businesses.

So-called payroll tax credits are criticized by economists
because it is hard to discriminate between jobs created due to
the incentives, and hiring that would have happened anyway.

The administration official said even though this might be
the case, it was still worth doing.

“Not every single tax credit will go to someone who created
a job because of this, but we think that is good. Small
businesses need tax cuts,” the official, who spoke on the
condition of anonymity, told reporters in a conference call.

Obama will propose to pay for the plan with savings from a
$700 billion bank bailout fund, the official said, but made
plain that this would be up to the Congress to decide.

Expected losses on the Troubled Asset Relief Program, or
TARP, have fallen by some $200 billion thanks to the improved
health of banks, and the White House says this has created
budget “space” to ease unemployment, now at a 26-year high.

The $155 billion House jobs bill also included a provision
for $75 billion of that money to come from TARP savings.

In addition, Obama wants to use a further $30 billion from
TARP to aid the flow of credit through community banks to small
businesses. The White House said there would be more details on
this aspect of Obama’s job strategy in the coming weeks.

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UPDATE 1-Obama to propose $33 bln tax credit to create jobs