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Obama faces tight restraints in new jobs plan

At a minimum, President Obama’s plan will offer incentives to businesses to hire more workers. At a minimum, President Obama’s plan will offer incentives to businesses to hire more workers.
By Jim Kuhnhenn
Associated Press / August 31, 2011

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WASHINGTON - Limited in his ability to create jobs through direct spending, President Obama is considering measures to encourage the private sector to free up its cash reserves and hire more workers to ease the nation’s unemployment crush.

As Obama prepares to unveil a new jobs agenda next week, his aides are reviewing options that would provide tax incentives to employers who expand their payrolls. That approach is a more indirect effort to spur the economy, relying less on direct intervention and public works projects.

Among the proposals circulating in the White House is a $33 billion tax credit that Obama first proposed early last year but that Congress whittled into a smaller one-year package.

Under one version of the plan, employers would receive a tax credit of up to $5,000, subtracted from their share of federal payroll taxes, for every net new hire. White House officials caution that the overall jobs plan is still subject to change.

The tax credit, however, is a relatively untested idea. Congress passed a version in March 2010, known as the HIRE Act, which provided $13 billion in tax credits to qualified employers who hired new workers. But there is no government data to track its success.

“The HIRE Act was very small,’’ said Mark Zandi, chief economist at Moody’s Analytics and an occasional adviser to Democrats and Republicans. “It really didn’t add to payrolls.

“It would have to be bigger. Something more along the lines that the Obama administration proposed in 2010.’’

While promising a major jobs package, Obama is hamstrung by budget cuts and a tight debt ceiling he had a hand in negotiating.

As a result, economists predict while the president’s initiatives could cut some drag on the economy and maintain the status quo, they will not be enough to propel it to new heights

At a minimum, the president’s plan will call on Congress to extend current payroll tax cuts and jobless benefits, spend money for new construction projects, and offer incentives to businesses to hire more workers.

“We don’t have magic bullets, but what we do have, I think, is the capacity to do some things right now that would make a big difference,’’ Obama said yesterday in an interview with radio talk show host Tom Joyner.

Obama faces a divided Congress, where Republicans, demanding fiscal austerity, reject the notion that short-term infusions of taxpayer money into the economy can prod a sluggish recovery. Moreover, a large package even half the size of the $825 billion stimulus Congress approved in 2009 would move the government closer to its new debt ceiling before the November 2012 election, something Obama is determined to avoid.

Among other measures under consideration, but not yet decided:

■ A major school construction initiative of up to $50 billion.

■ Encouraging corporations to bring into the United States some of their foreign sources of income at preferential tax rates in exchange for job creation measures.

■ Tying unemployment insurance payments to on-the-job training.