Obama looks at new tax cuts to speed recovery White House considers tax breaks for business

WASHINGTON — The Obama administration is weighing a package of business tax breaks — potentially worth hundreds of billions of dollars — to spur hiring and to combat Republican charges that Democratic tax policies hurt small businesses, according to people with knowledge of the deliberations.

Among the options under consideration are a temporary payroll-tax holiday and a permanent extension of the expired research-and-development tax credit, which rewards companies that conduct research into new technologies within the United States.

Administration officials have struggled to develop new economic policies and an effective message to blunt expected Republican gains in Congress in November's midterm elections.

Officials also are trying to defuse complaints from Democrats that President Obama is fumbling the issue most important to voters.

Advisers have arranged a series of economic events for Obama next week, including two trips and a news conference.

"We'll continue to do everything we can, understanding that recovery will require persistent effort. There are no silver bullets," senior Obama adviser David Axelrod said Thursday.

Administration officials cautioned that no tax cuts have been settled on and that a more limited measure could emerge. Policy staffers are debating a range of options. For example, a payroll-tax holiday — a priority of many business groups — could be applied only to new hires or extend to current employees. It could be limited to small businesses or extended to larger firms.

If administration officials can agree on a policy, it is not clear that it would be approved in the current environment on Capitol Hill. And if Congress did approve new measures to bolster the economy, they probably would come too late to make a difference in the lives of recession-weary voters before the midterms.

"Substantively, there is nothing they could do between now and Election Day that would have any measurable effect on the economy. Nothing," said the Brookings Institution's William Galston, who was a domestic-policy adviser to President Clinton.

Over the past year, with the jobless rate hovering near 10 percent, Obama has repeatedly promised to shift from other matters to the economy. He did so again this week, saying during his address on Iraq that he would turn to the economy "in the days to come."

But some Democratic candidates and political operatives say the president is not doing enough to help them keep control of Congress, privately expressing frustration that Obama recently has emphasized issues other than the economy.

"We did the mosque, Katrina, Iraq and now Middle East peace?" said a Democratic strategist who spoke on condition of anonymity.

Many economists say Obama's policies have been reasonably effective at pulling the nation back from recession. Last year's stimulus package — estimated to cost $814 billion — protected as many as 3.3 million jobs, according to the independent Congressional Budget Office.

Nonetheless, his efforts to give the economy another boost have been stymied since spring, when members of both parties became keenly aware of rising public concern about the national debt.

In November, Obama said he would turn his attention to unemployment, calling it "one of the great challenges that remains in our economy." He declared the same intent two months later, telling House Democrats he would focus relentlessly on job creation "over the next several months." Senior aides went on television pledging the mantra would become "jobs, jobs, jobs."

But other matters — health care, the BP oil spill — continually stole the limelight, creating the impression, some Democrats complain, that the president was barely focused on the economy.

Obama has another incentive to act: Tax cuts enacted during the Bush administration are scheduled to expire in January, and Democrats — accused by Republicans of plotting to let them vanish — feel compelled to do something before the midterms.

Obama campaigned on a pledge to let cuts expire for the richest 2 percent of households, but some Democrats say the economy is too weak to raise anyone's taxes now. They fear a backlash from small-business owners who would be hit with higher taxes.

Pairing targeted business tax breaks with an extension of middle-class tax cuts could help alleviate those problems.

Permanently extending the research credit would cost roughly $100 billion over the next decade, tax analysts said. And depending on its form and duration, a payroll-tax holiday could cost more than $300 billion.

More spending on infrastructure, particularly transportation projects, is also under discussion. But it would be easier for a package made up purely of tax cuts to "avoid the stain of a 'bailout' or 'stimulus' label," said one official, speaking on condition of anonymity.

The president could roll out additional measures next week. Senate leaders hope to begin debating the tax issue in late September.