President Obama has proposed creating a tax incentive for small businesses that hire new employees even as Congress tries to figure out how such a deal would work.

There is no question that creating a tax incentive for small businesses that hire workers or increase payroll would help the economy.

Lawmakers on Capitol Hill have been working for months on ways to develop small business tax incentives and give small businesses tax help in a way that it won’t be abused.

Obama and Congress have both been vague on how the tax break would work and how it would be administered.

“I believe it’s worthwhile to create a tax incentive to encourage small businesses to add and keep employees and I’m going to work with Congress to pass one,” Obama said.

With the 2009 year ending, Congress is running out of time to pass a jobs package this year, and the process will be even more complicated if the administration doesn’t come up with details. Moreover, the Senate is preoccupied with the health care debate, making any action less likely.

The Obama administration is expected to propose extensions and enhancements tax credits and tax breaks that were part of the federal economic stimulus package passed in early 2008.

Obama also proposed eliminating capital gains taxes on small business stock, if it is purchased in 2010 and held for at least five years, expanding a tax break enacted in the stimulus package.

While Obama and the Democrats focus on health care reform, Republicans believe the focus should be on getting Americans back to work. Unemployment rates currently stand at 10 percent.

Tax experts ponder how a small business tax break for hiring working would work. Do you give a tax break just for hiring more employees, or do companies have to simply increase payroll? How long do the companies keep the workers? How do you enforce the requirements?

“You’re trying to subsidize people for doing things they wouldn’t otherwise do, but we don’t know what they would otherwise do,” said Eugene Steuerle, a Treasury Department official in the Reagan administration who is now co-director of the Tax Policy Center, a Washington think tank.

John H. Bishop, an economist and a professor at Cornell University, has a proposal for extend tax credits to companies that increase payroll subject to Social Security taxes. Since only the first $108,600 of a worker’s pay is subject to Social Security taxes, executives couldn’t get the credit by giving themselves big bonuses, he said.

Bishop’s small business tax credit proposal would help the economy if companies either raise the pay of existing workers or hire new workers. Bishop’s proposal, modeled after a similar tax credit enacted in the 1970s, has been circulating on Capitol Hill for several months.

“It does exactly what we want,” Bishop said. “It focuses on hiring Americans to work now.”

source: The Associated Press 2009

With less than a week before the U.S. election, it seems everyone is focusing on the Obama tax and economic plan, but according to an article published by Bloomberg, McCain’s economic recovery plan deserves to be looked at.  His economic recovery and tax plan calls for cutting the corporate tax, preserving the fifteen percent capital gains tax, letting businesses expense technology and equipment, freezing government spending and seeking long term solutions to economic recovery.  Consider this…

John McCain’s plan to bring down the corporate tax to 25 percent (a .10% cut) would induce foreign investment to remain. It would also continue the rally of the U.S. dollar.

John McCain is sticking to his guns when he says he will make Georg W Bush’s income tax cuts permanent. And he is all for preserving the 15 percent tax rate on capital gains and dividends.  Why is this important?

What experts are discovering about our current financial crisis, is there are plenty of mediocre companies sitting in portfolios.  Many people are trying to get out of them now, and many more will in the future. But if the capital gains rate is increased, it may deter those who otherwise would bail out of these companies. What this does, is prevent the shift of dollars from these “dogs” to investment in new companies with better products.

The McCain plan would speed up the economic recovery and improve the quality of it.  McCain’s plan suggests cutting the capital gains taxes in half in the next two years.  Although not a short term solution to the economic problem, it seems a wise choice in the long run.

A good idea is to allow companies to expense 100% of it’s investment in technology and equipment, in the same year they buy it. The current formula allows companies to write off half of the expense in the first year, and then depreciate the balance over a longer period. This would be especially beneficial to areas of the country that invest in heavy machinery, like Cleveland and Detroit.  However, the McCain plan calls for write-downs over a 3 or 5 year depreciation schedule.

McCain’s plan on energy is to build 45 new nuclear plants by 2030. This “green” energy source would significantly cut U.S. dependence on foreign oil, which would maintain stability in the financial markets. It would also create 700,000 jobs. The construction of these plants could be financed by the U.S. Treasury.

The McCain plan calls for an overall freeze on government spending.  Good luck with this, we’re all smart enough to know that Washington isn’t capable of passing it into law. But McCain’s disposition may help make some inroads on this issue.

McCain’s economic plan is a dynamic one, looking at the growth and competitive environment generated by tax cuts.
As noted in the Bloomberg post,”The Institute for Research on the Economics of Taxation finds that the McCain tax plan would add 0.5 percent to the annual growth rate for the private sector for five years. Obama’s plan would subtract 0.7 percent a year in growth for the same period. As Steve Entin of IRET notes, politicians have hurt growth before by ignoring such effects.

The Obama vision is all static. It’s better to redistribute, he says, because we sure aren’t going to grow. This attitude ignores the possibility of expansion, and it’s one that many lawmakers share, seeing only belt-tightening in the future. On some days, these gloomsters even include McCain.”

John McCain’s tax and economic plan is one that needs to taken seriously.

Let’s clear up the misconceptions about Barack Obama’s Tax Plan.

First of all Obama is proposing to raise taxes of only the most affluent Americans, those who earn over $250,000 a year.

He would also triple the earned-income tax credit for low-wage earners and increase work incentives for those Americans at the bottom.

His plan would also cut taxes for the middle class.

Here are some comments about the Obama Tax Plan:

Rea Hederman Jr., a senior policy analyst at the conservative Heritage Foundation “said the middle class would likely pay less under Mr. Obama’s plan than Mr. McCain’s.” [NY Sun, 8/15/08]

Obama’s tax calculator is “a very simple gadget that’s the most useful thing I’ve seen on any political website in a while.” [Forbes.com, 10/08]

The Obama Tax plan will definitely broaden tax relief of the middle and lower class and cut taxes for small businesses and those companies that keep jobs in here in the United States.

Obama also has a plan to have the government invest in health care, clean energy, education and innovation. His plan will create jobs and help protect domestic jobs.

Find out more of the Obama Tax Plan

Here is more on his plan:

• Cut taxes for 95 percent of workers and their families with a tax cut of $500 for workers or $1,000 for working couples.

• Provide generous tax cuts for low- and middle-income seniors, homeowners, the uninsured, and families sending a child to college or looking to save and accumulate wealth.

• Eliminate capital gains taxes for small businesses, cut corporate taxes for firms that invest and create jobs in the United States, and provide tax credits to reduce the cost of healthcare and to reward investments in innovation.

• Dramatically simplify taxes by consolidating existing tax credits, eliminating the need for millions of senior citizens to file tax forms, and enabling as many as 40 million middle-class Americans to do their own taxes in less than five minutes without an accountant or tax advisor.

Tax Relief For Middle Class Families will include:

• A $1,000 Tax Credit
• A refundable $4,000 American Oppportunity Tax Credit
• A Universal 10% Mortgage Interest Tax Credit
• Elimate Income Taxes for Seniors Making Less than $50,000
• Expand retirement savings incentives
• Health Care Credits
• Expand the Earned Income Tax Credit
• Expanded Tax Credits for Clean Vehicle
• Simplify Tax System