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When President Obama called last month for a new tax break to spur job creation, critics blasted him for offering no specifics. On Friday, Obama plans to fill in the details: He wants to give businesses a $5,000 tax credit for each net new employee they hire this year.
Job creation "must be our No. 1 focus in 2010," Obama said Wednesday night in his State of the Union address. "We should start where most new jobs do -- in small businesses."
Obama will travel Friday to Baltimore, where the local unemployment rate is nearly 11%, to unveil his tax-cut road map. The $5,000 per-worker tax credit he's calling for would be available to businesses of any size, and would be retroactive to the start of the year. Startups launched in 2010 would be eligible for half of the tax credit.
Obama is also proposing a reimbursement of the Social Security taxes businesses pay on increases in their payrolls this year. Firms could earn the credit by raising wages or increasing the hours of their current workers, as well as by hiring new employees. The tax credit would be adjusted for inflation, and would not apply to wage increases above the current taxable maximum of $106,800.
The proposal will cost $33 billion, according to estimates released by the White House, which expects 1 million businesses to benefit from it.
While any business would be eligible for the tax breaks, the refund would be capped at a total of $500,000 per firm, a move the White House hopes will steer the biggest benefits to the smallest companies. Firms eager for cash could claim the credits on a quarterly basis, sparing them the wait before they file their annual taxes.
Hiring tax credits have been proposed before, and shot down in part because of their vulnerability to abuse. Senior White House officials say Obama's plan includes a slew of safeguards to prevent companies from gaming the system.
For example, companies would have to show net increases in their staffing and payroll to qualify. Businesses that cut 20 workers and hire five wouldn't be eligible, nor would those that lay off a $50,000 worker and hire two $20,000 staffers.
Main Street's cash crunch: Several in Congress are already on board with the idea of tax credits for hiring. Senators Charles Schumer, D-N.Y., and Orrin Hatch, R-Utah, unveiled their plan, which has some similarities to Obama's, in an op-ed on Wednesday.
But some business owners say the idea puts the cart before the horse.
"I need money before I hire people, not after I hire them," said Jimmie Hughes, the owner of Grand America in Richardson, Texas. Hughes' 15-person company sells supplies for a range of businesses, including funeral homes and police departments.
The company's sales are growing, and Hughes would like to hire more people. But while his receivables ledger is at a record high, his cash flow is suffering. Hit by the recession, his customers are taking longer than ever to pay their bills. Hughes, who started the company at home as a sole proprietor in 2003, has maxed out half a dozen credit cards trying to keep pace with the growth.
"It all comes down to cash -- how much cash do I have to apply to what I owe my vendors?" Hughes said. His staffing decisions will be based on "my cash-flow situation, not a tax credit."
Jeff Moss, the owner of Pancho's Border Grill in Great Neck on Long Island, N.Y., had a similar reaction.
"In my line of work, the restaurant business, jobs are going to be created or deleted as a direct result of customer traffic," Moss said. "It is not like we are a Fortune 500 company, where we are going to be adding hundreds of jobs and those credits are going to be adding up. We are a small business. If we are adding one employee, the effect on the bottom line is going to be negligible."
What Moss really needs is for the economy to pick up so his customers will increase their discretionary spending. Two weeks ago, he shut down his second restaurant in another, less affluent area of Long Island.
"When the economy tanked, traffic dropped," Moss said. "That was 30 people who lost their jobs, and that was a bitter pill to swallow."
Asian stocks kicked off the week with losses Monday as investors reacted to a selloff on Wall Street, but major stocks in Europe managed slight gains.
U.S. markets are closed Monday for Martin Luther King Jr. day.
On Friday, the blue-chip Dow Jones industrial average tumbled 100 points, or 1%, as investors remained wary about corporate earnings.
Global markets: Most stocks in Asia tracked Wall Street's losses. Japan's Nikkei lost 1.2% and the Hang Seng in Hong Kong finished the session down 0.9%.
In Europe, major indexes managed slight gains. In morning trading, the FTSE 100 in the UK was up about 0.7%. France's CAC 40 and the DAX in Germany both added about 0.5%.
Oil and dollar: Oil prices edged higher. U.S. crude for February delivery rose 20 cents to $78.20 a barrel in electronic trading.
The dollar was up just a shade against the euro and flat versus the yen.
Earnings: Friday capped a volatile week for Wall Street. Despite what were overall positive results from JPMorgan (JPM, Fortune 500) and Intel (INTC, Fortune 500), investors opted to sell shares.
Investors are likely to remain on edge as they await a slew of results this week.
Overall, 57 companies in the S&P 500 are on tap to report their quarterly results this week.
Several major financial names, including Bank of America (BAC, Fortune 500), Goldman Sachs (GS, Fortune 500) and Morgan Stanley (MS, Fortune 500), are among the firms due to release their results. To top of page
Stocks were little changed early Monday as investors mulled a report showing a jump in Chinese exports, a weaker dollar and a rise in commodities.
The Dow Jones industrial average (INDU) added a few points in the early going. The S&P 500 index (SPX) gained 2 points, or 0.2%. The Nasdaq composite (COMP) was little changed.
Philip Isherwood, equities strategist at Evolution Securities in London, said traders were ignoring last week's negative payroll report and were reacting, in part, to positive data from China about the strength of its import-export economy. Also, investors have positive expectations about the fourth-quarter corporate reports, which begin later Monday with Alcoa.
"You'd expect to have a reasonable number out of them," he said, in reference to the corporate reports. "You'd obviously want to have a bit more revenue than cost cutting in that mix."
Stocks gained slightly Friday, propelled by a tech rally, as investors shrugged off a surprisingly weak jobs report amid other recent signs that the economy appears to be stabilizing.
0:00 /2:45U.S. Autos seek smoother ride in 2010
Companies: Investors will be waiting for Alcoa (AA, Fortune 500), the first of the Dow components to report fourth-quarter figures, after the market close. Analysts surveyed by Thomson Reuters expect the aluminum maker to report a profit of 6 cents a shares, compared to a loss of 28 cents a share in the final quarter of 2008.
Later this week, Intel (INTC, Fortune 500) and JPMorgan Chase (JPM, Fortune 500) post quarterly figures.
Earnings of S&P 500 companies are expected to have jumped 213% in the fourth quarter of 2009, thanks to easy comparisons to the year-earlier period, the worst quarter in the history of earnings tracker Thomson Reuters.
World markets: Asian markets ended higher and European markets gained at midday.
Commodities and the dollar: The dollar tumbled versus the euro and the yen.
Dollar-traded gold inched higher. COMEX gold for February delivery rose $15 to $1,154.90 an ounce. Gold closed at an all-time high of $1,218.30 an ounce last month.
U.S. light crude oil for February delivery rose 50 cents to $83.25 a barrel on the New York Mercantile Exchange.
Bonds: Treasury prices rose, lowering the yield on the 10-year note to 3.80% from 3.83% late Friday. Treasury prices and yields move in opposite directions.
he number of Americans filing first-time claims for unemployment insurance fell sharply last week to the lowest level in 17 months, the government said Thursday. Analysts had expected an increase.
There were 432,000 initial jobless claims filed in the week ended Dec. 26, down 22,000 from the previous week's revised 454,000, the Labor Department said. The figure is the lowest since July 19, 2008, when there were 413,000 claims filed.
A consensus estimate of economists surveyed by Briefing.com expected claims to jump to 460,000.
The 4-week moving average of initial claims totaled 460,250, down 5,500 from the previous week's revised average of 465,750.
"It's encouraging to see that we're continuing to move in the right direction toward 400,000 claims," said Tim Quinlan, economic analyst at Wells Fargo. "We're certainly off the highs we saw earlier this year.
Jobless claims have been trending downward since the end of March, when they peaked at 674,000, the highest figure since 1982.
Continuing claims: The government said 4,981,000 people filed continuing claims in the week ended Dec. 19, the most recent data available. That's 57,000 down from the preceding week's revised 5,038,000 claims.
The 4-week moving average for ongoing claims fell by 122,250 to 5,101,250 from the previous week's revised 5,223,250.
But the slide may signal that more filers are dropping off those rolls into extended benefits.
Continuing claims reflect people filing each week after their initial claim until the end of their standard benefits, which usually last 26 weeks. The figures do not include those who have moved to state or federal extensions, or people whose benefits have expired.
Congress passed legislation last month to extend federally paid benefits up to 99 weeks, depending on the state, but the law only helps those who exhaust their federal unemployment lifelines by the year's end.
Lawmakers in the House and the Senate recently passed measures to extend the filing deadline through the end of February. The President is expected to sign the legislation soon.
Both chambers initially introduced bills to push the deadline to apply for benefits through 2010 or beyond, but Democratic leaders in the House scaled back the effort in hopes of getting the bill through the Senate more quickly.
State-by-state: Jobless claims in 10 states declined by more than 1,000 for the week ended Dec. 19, the most recent data available. Claims in Tennessee dropped the most, by 2,972.
A total of 12 states said claims increased by more than 1,000. Claims in New York jumped the most by 1,155. A state-supplied comment attributed the increase to layoffs in the construction, service and real estate industries.
Outlook: The employment picture will continue to improve as jobless claims continue to fall, but Quinlan said they will need to drop near 350,000 for positive job growth.
He expects nonfram payrolls to return to positive territory by the second quarter of 2010, and for the unemployment rate to fall by the end of the year.
