Democrats pan payroll tax credit

President Obama’s $33 billion proposal to offer payroll tax credits to create jobs is being met with opposition among some House Democrats who question whether the incentives are strong enough.

Rep. Mike Thompson, California Democrat, questioned whether a $5,000 payroll tax credit for every net new employee is strong enough to have an impact on the country’s 10 percent unemployment rate.

“I don’t know anybody in business who hires an employee because they’re going to get a tax break,” Mr. Thompson said at a House Ways and Means Committee hearing with Treasury Secretary Timothy F. Geithner. “People hire employees because they have work to do.”

Rep. Lloyd Doggett, Texas Democrat, cited “general consensus among tax experts is that the credit is a stinker because it simply encourages people to do what they would have done anyway.”

Mr. Geithner defended the president’s proposal but said the details are still up for consideration.

“The president’s proposal is - and we’re open to ideas on how best to do this - is to give small businesses that add jobs $5,000 for each net job they create and combine that with some payroll tax relief,” he said.

In addition to the payroll tax credit, Mr. Obama’s plan offers tax credits of up to $5,000 to companies that provide pay raises to people making under $106,800.

The House already has passed a jobs bill, in December, to extend COBRA insurance subsidies, fund infrastructure projects and other benefits.

Senate Democrats are expected Thursday to release at least the first in what’s expected to be a series of jobs-related bills. In addition, Sens. Charles E. Schumer, New York Democrat, and Orrin G. Hatch, Utah Republican, released a bill Wednesday that would also offer a tax break.

Their plan would waive businesses’ 6.2 percent share of the Social Security payroll taxes for anyone they hire who had been unemployed for at least 60 days.

Other ideas floating around Capitol Hill to create jobs include funding for new infrastructure and highway projects, small-business tax credits and possibly a “cash for caulkers” program to encourage consumer spending on environmentally friendly home construction.

Under the president’s plan, no business would be able to get more than $500,000 of these credits, in an attempt to make sure the majority goes to small businesses. Critics of the cap warn that big businesses create jobs, too.

“A free market economy operates with businesses of all different sizes,” said Alan D. Viard, a resident scholar at the American Enterprise Institute, a conservative think tank. “There’s no reason to discriminate against large businesses. This $500,000 cap basically limits what a big firm can get.”

Some policy experts say that while the tax credit may merely encourage companies to do what they would have already done - as critics warn, they may speed up the rehiring.

“If you give them the incentive to do that today versus four months from now, we think that’s a good thing,” said Christian Dorsey, director of external and government affairs at the Economic Policy Institute, a liberal Washington think tank.

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