Senate Nears Deal to Offer Tax Break to Employers for Adding Workers

In this December 15, 2009 file photo, President Obama makes remarks on his meeting with Democratic senators about health care legislation as Senate Majority leader Harry Reid listens in the Roosevelt Room at the White House. (Reuters)

Key Democrats and Republicans closed in Wednesday on a bipartisan plan to give businesses a tax break for hiring unemployed workers. It could pass the Senate as early as next week.

The measure is an alternative to President Obama's proposed tax cut of up to $5,000 for each new worker that employers hire. Obama's plan ran into opposition from some House Democrats skeptical whether employers will hire because of a tax break.

The Senate alternative would exempt companies from paying the employer's share of Social Security payroll taxes for new workers hired this year, as long as those people had been unemployed at least 60 days.

Both measures are aimed at providing private businesses an incentive to hire some of the 7 million Americans who have lost their jobs in the recession.

Senate leaders plan to unveil their jobs bill Thursday and vote on it as early as next week. Even though their plan differs from Obama's, passage would represent a victory for the president as he tries to renew his administration's efforts to reduce unemployment in the run-up to congressional elections in November.

Senate passage would be a breakthrough for bipartisanship in a chamber that has been split sharply along party lines on many important votes. It would also put House Democrats on the spot to help Obama. Some House Democrats have been wary of the jobs tax credit because they doubt it would be effective and they question whether it would be open to fraud.

The Senate plan is modeled after a proposal by Democratic Sen. Chuck Schumer of New York and Republican Sen. Orrin Hatch of Utah. It would save companies 6.2 percent of the new workers' salaries that are subject to Social Security taxes, and would cost about $11 billion over 10 years, according to updated estimates.

A company could save a maximum of $6,621 if it hired an unemployed worker after the bill is enacted and paid that worker at least $106,800 -- the maximum amount of wages subject to Social Security taxes -- by the end of the year. The company could get an additional $1,000 on its 2011 tax return if it kept the new worker for at least a full year.

Schumer said the money would be repaid to Social Security, but he didn't say how.

Supporters said the Senate plan is cheaper, simpler and less vulnerable to abuse than Obama's plan, which would cost $33 billion.

The Senate bill under discussion Wednesday would also extend unemployment payments for those whose benefits have run out, and would renew a program that offers the jobless a subsidy for health insurance premiums under the COBRA program. About $33 billion in popular tax breaks, including an income tax deduction for sales and property taxes and a business tax credit for research and development, would be extended for one year, through 2010.

The bill would cost a total of about $81 billion, and would be partially offset by closing an unintended tax loophole enabling paper companies to get tax credits for producing alternative fuels during the paper-making process.

"This proposal shows how much we can do to help create jobs when politics is put aside," Schumer said. "Our payroll tax cut is a simple, cost-effective and bipartisan solution."

Hatch said, "As a conservative, this proposal isn't about more and more government spending; it's about tax relief to get employers hiring again, which is exactly what millions of unemployed Americans most desperately need."

Obama first said he supported a new jobs tax credit in December, but House Democrats left it out of a jobs bill they passed that month because they couldn't figure out how to make it work effectively. That bill stalled in the Senate.

"I don't know anybody in business who hires an employee because they will get a tax break," Rep. Mike Thompson, D-Calif., said Wednesday. "They hire employees because they have work to do."

Rep. Lloyd Doggett, D-Texas, said companies that have struggled to keep workers would miss out on the credit while those that got rid of workers could get it when they hire replacements.

"Surely, the Treasury can come up with a better way to promote job growth," Doggett said to Treasury Secretary Tim Geithner Wednesday at a House Ways and Means Committee hearing.

Rep. Charles Rangel, D-N.Y., chairman of the tax-writing Ways and Means Committee, offered this assessment: "It's controversial, it's on the table."

Geithner said that while increasing consumer demand is key to job growth, tax breaks for hiring new workers could help as demand starts to pick up.

"This doesn't solve all problems," Geithner said. "But we think it'll make a real difference."