Looking Ahead: Obama Proposes Jobs & Wages Tax Cut

In his State of the Union address earlier this week, President Obama said creating jobs was the number one agenda for his administration this year. Friday, we learn a little bit more about what that means and how he intends to bolster the nation's employment numbers when he visits a Baltimore business to propose his "Small Business Jobs and Wages Tax Cut."

The proposal, which would apply only to the current year and be retroactive, seeks to incentivize companies to not only hire new employees but to also raise their wages and/or expand hours for current employees.

Mr. Obama's plan is two-fold. First it would grant a $5,000 tax credit for every net new employee hired. Second if the qualifying businesses increase their payrolls (either through wage hikes or expansion of hours), they would be reimbursed for the Social Security taxes on those real increases. White House officials liken this feature of the plan to a "payroll tax holiday on pay raises" but one done as a credit.

The catch? The first of these two credits would be capped at $500,000 per business. The White House says the cap would ensure that small businesses benefit from the plan, and not bigger companies for whom $500,000 is not incentive enough.

"This is meant a little like the cash for clunkers program. It gives an extra incentive to go out, hire. And the second credit gives [companies] extra incentive for hiring people earlier in the year rather than later," explains a senior administration official.

The White House estimates the program would cost $33 billion and impact 1 million businesses. So where will that money come from? The White House points to the reduced cost of the Troubled Asset Relief Program (TARP) as creating "fiscal space" for new jobs initiatives.

Last month, the Obama administration projected that the bailout program would cost $200 billion dollars less than originally estimated.

"That's the philosophy that [the President] approaches it with but he's happy to work with Congress in terms of addressing the overall budgetary context that a plan like this would be undertaken," says the White House official.

The White House says it has no estimate on the exact number of jobs the tax credit would create.