- The Washington Times - Wednesday, February 3, 2010

Trying to get a handle on the nation’s sky-high unemployment rate, President Obama on Tuesday pushed for using $30 billion in Wall Street bailout money to encourage community banks to lend to credit-starved small businesses.

The tax break for about 8,000 smaller banks, which Mr. Obama unveiled at a town-hall event in Nashua, N.H., is the latest in a series of policies that aim to spur job growth by easing the burden of the recession on smaller firms, which both parties say are key to hiring new workers.

“These are the small, local banks that work most closely with our small businesses - that provide them their first loan, and watch them grow through good times and bad,” Mr. Obama said.

But the idea drew immediate fire from Republicans on Capitol Hill who argue that any remaining funds from the Troubled Asset Relief Program should be used to pay down the deficit.

“It’s not for a piggy bank,” New Hampshire Sen. Judd Gregg said while waving a copy of the law and questioning Peter R. Orszag, Mr. Obama’s budget director, at a hearing. “That’s not what this money is for. This money is to reduce the debt of our children.”

Mr. Orszag acknowledged Congress will have to change the TARP law, but said the White House thinks freeing up lending for small businesses is consistent with what Congress was trying to do in 2008 when it passed the Wall Street bailout.

The White House plan calls for discounting the dividend tax rate on banks with less than $10 billion that boosts their lending to small businesses.

“Combined with my proposal back in December to continue waiving fees and increasing guarantees for SBA-backed loans, this will help small banks do even more of what our economy needs - ensure that small businesses are once again the engine of job growth in America,” Mr. Obama said.

Dividend tax rates for banks under the fund would start at 5 percent but could dip to as low as 1 percent. Banks that increase lending sooner could take advantage of lower dividend rates sooner.

“We give [banks] an incentive not to herd or hoard the capital, but to increase their small-business lending,” a senior administration official said.

The proposal comes on the heels of a tax credit Mr. Obama announced Friday that would reward businesses that hire new workers or give existing employees a raise. Mr. Obama has also called for eliminating the capital gains tax on small business investments and continuing a stimulus policy that allows them to expense certain equipment purchases. Like those plans, the program would need to be approved by Congress.

The White House has said it is open to congressional input on its proposals and has endorsed Democrats’ plan for new spending focused on jobs, setting aside $100 billion toward such an effort in its budget for fiscal 2011, $33 billion of which goes toward Mr. Obama’s hiring and wage tax credit.

In December, the House passed a $154 billion version of a jobs bill that includes nearly $48 billion for infrastructure projects, $80 billion to extend unemployment insurance and $26 billion for public servants such as teachers and police.

Senate Democrats are soon expected to announce a series of steps, the first of which will be to extend the highway bill for one year to keep road construction projects going. The senior Democrat and Republican on the chamber’s small business panel on Tuesday called on Mr. Obama to consider bipartisan legislation that would raise the cap on federal small-business loans and devote more money to export loans.

Mr. Obama’s Small Business Lending Fund would cover some 8,000 small and community banks that may have been eligible for TARP funds but opted against taking the money for fear of the strings that were attached or the stigma of accepting a bailout, Small Business Administrator Karen Mills said.

Banks with less than $1 billion in assets would be eligible to receive capital investments from the Treasury Department of up to 5 percent of their risk-weighted assets, and banks with assets between $1 billion and $10 billion could receive funds totaling 3 percent of risk-weighted assets. For every 2.5 percent increase in small-business lending over a two-year period, participating banks would receive a 1 percent decrease in the dividend rate they have to pay to Treasury.

• Kara Rowland can be reached at krowland@washingtontimes.com.

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