Plan Emerges to Pay for Obama Jobs Bill

By Richard Rubin and M

President Barack Obama and Vice President Joe Biden, as well as teachers, veterans, and small-business owners, announces the formal release of his $447 billion dollars jobs plan to Congress in the Rose Garden on September 12, 2011. Photographer: Jim Lo Scalzo/EPA

President Barack Obama is targeting high earners, private equity managers and oil and gas companies in his bid to pay for a $447 billion job-creation plan.

The revenue-raising provisions of the legislation that Obama sent to Congress today were mostly pulled from previous administration budget proposals that have been rejected by Republicans in Congress.

“I think they’ll be familiar to most of you, because they’re ideas that we have been talking about for the most part for some time,” Jack Lew, the White House budget director, said at a White House briefing today.

At a White House Rose Garden event earlier today, Obama called on lawmakers to act on the proposal with “no games, no politics, no delays.” Republicans, who control the House of Representatives, have signaled they may be willing to support some of the tax cuts for businesses and workers Obama recommends while expressing skepticism about his spending proposals and reliance on raising taxes for some individuals and industries.

“It would be fair to say this tax increase on job creators is the kind of proposal both parties have opposed in the past,” Michael Steel, a spokesman for House Speaker John Boehner, an Ohio Republican, said in a statement. “We remain eager to work together on ways to support job growth but this proposal doesn’t appear to have been offered in that bipartisan spirit.”

Revenue Raisers

The biggest revenue-raising proposal in the jobs package, at $400 billion, would cap itemized deductions and some exclusions for individuals earning more than $200,000 a year and married couples earning more than $250,000, Lew said.

The legislative proposal released by the administration would put a 28 percent cap on itemized deductions, meaning that the highest-income Americans would receive less of a federal tax break on their mortgage interest, state taxes and charitable contributions.

It also would limit deductions for contributions to health savings accounts and exclusions of some individual income earned outside the U.S.

Obama also wants to raise $18 billion by taxing the carried interest, or profits-based compensation, of private equity managers, real estate investors and venture capitalists as ordinary income, instead of more lightly taxed capital gains. That would affect companies including Blackstone Group LP (BX) and KKR & Co. LP.

Industry Reaction

“Proposals to raise taxes on carried interest have consistently been rejected for over four years because raising taxes on investments would only sideline employers and investors and create further uncertainty in an already struggling economy,” Steve Judge, interim president and chief executive officer of the Private Equity Growth Capital Council, the industry’s Washington-based trade group, said in a statement today.

The oil and gas industry would face $40 billion in new taxes over the next decade, according to Lew. Obama’s budget proposal included limits on the industry’s ability to claim domestic manufacturing deductions for drilling. Companies including Exxon Mobil Corp. (XOM) and Royal Dutch Shell Plc have opposed the administration’s proposal.

Another $3 billion would come from changing the depreciation schedule for corporate jets to match the longer schedule associated with commercial airliners.

Republican Opposition

House Majority Leader Eric Cantor, a Virginia Republican, said he opposes eliminating the carried interest rate, saying it is the “fundamental tax law” underlying real estate deals and other investments.

It gives investors an incentive to “put capital at risk so we can create jobs,” he told reporters today. Cantor noted he hadn’t seen the details of Obama’s plan and wouldn’t object to changes that would tighten restrictions on illegitimate use of carried interest deductions.

The proposal would have $467 billion worth of savings and higher revenue, more than offsetting the cost of cutting payroll taxes and spending on infrastructure and state aid, Lew said. A congressional supercommittee charged with finding long-term deficit reductions can accept Obama’s proposal to pay for the package or come up with its own plan later this year, Lew said.

“We’ve got to decide what our priorities are,” Obama said today. “Do we keep tax loopholes for oil companies -- or do we put teachers back to work? Should we keep tax breaks for millionaires and billionaires -- or should we invest in education and technology and infrastructure, all the things that are going to help us out-innovate and out-educate and out-build other countries in the future?”

Deficit Cutting

Obama’s jobs plan will likely put the supercommittee in an even deeper hole because it would have to come up with additional money to prevent the administration’s proposal from widening the deficit.

The 12-member panel faces an uphill battle to produce a plan to cut at least $1.2 trillion from the federal budget by Nov. 23. If the panel doesn’t act, or if its plan is rejected by Congress, an automatic $1.2 trillion in cuts would take effect in 2013.

The centerpiece of Obama’s plan to boost hiring and economic growth is a cut in the payroll tax, which covers the first $106,800 in earnings and is evenly split between employers and employees. Obama would reduce the portion paid by workers next year to 3.1 percent from 4.2 percent now. The rate was reduced by two percentage points under the terms of a tax deal reached in December. That cut is set to expire Dec. 31, which would push the tax rate back to 6.2 percent.

Tax Breaks

Businesses would see their payroll taxes cut in half to 3.1 percent from 6.2 percent for the first $5 million they spend on wages. Companies would face no payroll tax next year on the first $50 million they spend on raises or on wages for new employees.

Obama also is proposing to extend a provision that lets companies immediately deduct certain capital expenses rather than writing them off over time.

The plan also includes money for improving infrastructure, modernizing schools and helping states keep teachers and emergency workers on the job.

At the White House today, Obama called on lawmakers to heed his sense of urgency, saying the measure will reduce economic uncertainty and blunt headwinds from Europe’s debt crisis.

“These aren’t games we’re playing here; folks are out of work,” Obama said. “Businesses are having trouble staying open, you’ve got a world economy that is full of uncertainty right now -- in Europe, in the Middle East. Some events may be beyond our control, but this is something we can control.”

Cantor said he was concerned that more than half of Obama’s proposal package “is so-called stimulus spending” akin to the 2009 stimulus law that didn’t produce a sustained recovery from the recession.

“We’ve been there, done that,” Cantor told reporters today. “The country cannot afford more spending like a stimulus bill.”