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Tax Cuts Rule Jobs Agenda

As Republicans and Democrats roll out their jobs agendas, they seem to be on pace to agree on virtually nothing. Even scheduling President Barack Obama’s joint session before Congress turned into a war. And with the economy continuing to sputter — last week’s dismal employment report being a case in point — the two parties have intensified their blaming of each other.

Amid the conflict, though, the agenda for Obama and House GOP leaders seems to match up on one key point: They’re both talking about a tax cut aimed at businesses to boost the economy. They agree on where to go, just not how to get there.

Obama has urged Congress to extend the payroll tax cut, having done so as recently as Aug. 20 during his radio weekly address. Many insiders expect his address Thursday to Congress to include the employee payroll tax cut and a proposal to expand it to their employers.

This could dovetail with what House Republicans are proposing.

House Majority Leader Eric Cantor (R-Va.), in an Aug. 29 memo on Republicans’ “upcoming jobs agenda,” proposed a “tax deduction equal to 20 percent of [the] income” of “small business people.”

So Obama and Cantor favor tax cuts aimed at businesses, but there is still a significant gap between how they want to design their tax cuts.

Democrats prefer the payroll tax cut because it benefits millions of Americans whose incomes wouldn’t benefit from cuts to the income tax rate.

They also say money in the pockets of those in lower-income brackets is likely to be spent more quickly.

Republicans say that because the payroll tax cut is explicitly temporary, job creators don’t plan and make hiring decisions based off of it like they would a change to tax rates.

“Targeted relief for small-business people/employers makes it easier for them to retain current employees and hire new ones by reducing their tax liability. That is more growth-oriented than the payroll tax,” Cantor spokesman Brad Dayspring said.

Gene Sperling, director of the White House National Economic Council, seemed to embrace both approaches in a Bloomberg Television interview Friday, saying, “We are looking at all different options. … It will focus on tax cuts that will help workers as well as small businesses.”

But insiders say any talk of tax cuts faces major hurdles. How will it be financed? What is the legislative vehicle? And what is the relationship of such a proposal to the bipartisan Joint Committee on Deficit Reduction, which gets down to business this month in earnest?

“We just finished with this huge, gut-wrenching fight over raising the debt ceiling and reducing deficits,” said Ken Kies, managing director of the Federal Policy Group and a top tax lobbyist. “Are they going to pay for this tax cut? If not, that’s a problem. … But any tax increase to pay for what’s proposed is not going to be received well by House Republicans.”

In terms of venue, the super committee, created as part of the debt ceiling deal in August and tasked with reducing the deficit, is likely to be the vehicle for any tax cut.

There’s no other must-pass tax legislation this year, and standalone legislation probably faces too much peril on its own.

“On taxes, I think it’s the only game in town right now,” said Caroline Harris, chief tax counsel for the U.S. Chamber of Commerce, about the super committee.

“A lot of people want a jobs component to whatever the super committee does,” a senior Democratic aide said.

But there’s a long way to go in developing the proposals and a tight deadline for the super committee.

Dayspring said the 20 percent deduction proposal would be “like” a tax deduction in the “alternative stimulus” Republicans proposed during the 111th Congress but that the plan is still being changed. “We are continuing to discuss refinements to the proposal for this Congress,” he said.

“In other words, it is still a vague proposal,” Kies said. “People are going to want to have a lot of questions answered.”

“We can cut payroll taxes again, so families have an extra $1,000 to spend,” Obama said in his Aug. 20 address.

Other tax ideas floating around include tax incentives for hiring new workers and allowing American companies to “repatriate,” or bring back to the U.S. without penalty, money they have overseas.

More broadly, patent reform and free-trade agreements are two job-boosting items that are slated for action this fall.

Speaker John Boehner (R-Ohio) included patent reform in a just-released “House Republican Plan for America’s Job Creators.”

Proponents of the legislation say it will speed innovation by reducing backlogs for applying for patents. Versions of the legislation have passed both chambers, but a disagreement over fees the Patent and Trademark Office collects has stalled sending it to the president’s desk.

On trade agreements, Republicans are planning to push a measure reauthorizing the Generalized System of Preferences to highlight what they call White House inaction on three free-trade agreements. 

Passage of the deals — with Colombia, Panama and South Korea — has been stymied by a disagreement between Obama and Congressional Republicans over how to renew aid to workers displaced by trade deals, or Trade Adjustment Assistance.

There is more urgency for action on jobs in the wake of employment figures released Friday, which showed the U.S. economy created a net of zero jobs in August. It was the latest piece of bad economic news that has accompanied a drop in approval ratings for Congress and Obama.

But Kies said that because of how long the federal government takes to implement new laws, for any sort of legislation to affect the unemployment rate before the November 2012 elections, “you really should have had something enacted
Jan. 1 of this year.”

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