Today President Obama outlined his plan to promote the growth of small businesses as a way to stimulate the economy and reduce unemployment. During his State of the Union Address, Obama proposed using $30 billion repaid funds that financial institutions received through the Troubled Asset Relief Program (TARP) to increase the ability of small businesses to obtain loans. In addition, he called for tax incentives for businesses to invest in new plants and equipment, and the elimination of capital gains taxes on small business investment. 

Last week, Obama released some specifics about the Small Business Jobs and Wages Tax Cut, a proposal that would reward employers that increase hiring and/or wages with tax cuts. According to a fact sheet (pdf), businesses, including non-profits, would receive a $5,000 tax credit – up to $500,000 per firm – for every net new employee hired in 2010. Start-ups would be eligible for half of this tax credit. An additional tax credit would be provided for those employers that increase wages or work hours for new or existing employees. Specifically, businesses would receive a bonus 6.2 percent tax credit on aggregate wages in excess of inflation, thereby reimbursing the employer for the Social Security payroll taxes they pay on those payroll increases. Firms would not get credit for increasing wages for employees making more than the current taxable maximum of $106,800. This credit could be claimed on a quarterly basis. The proposal also includes anti-abuse provisions to prevent “gaming” the system, such as firing then re-hiring employees to qualify for the tax credit, or replacing full-time with part-time employees. This proposal echoes the provisions included in a number of recently-introduced job creation bills.

Photo credit:  Elizabeth Cromwell