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September 9, 2011 8:33 pm
Only minutes after President Barack Obama finished delivering his jobs speech to Congress on Thursday night, the endorsements from senior members of the business community started rolling in.
The plaudits – expressing varying degrees of enthusiasm for the $447bn plan to stimulate the economy – came mostly from corporate leaders known to have close ties to the White House, from Dick Parsons, chairman of Citigroup, to Ken Chenault, chairman of American Express, to Jeffrey Immelt, chairman and chief executive of General Electric and head of the president’s jobs council.
It was all part of a careful choreography put together by the White House to show that American business executives were on its side in trying to persuade sceptical Republicans to support the administration’s package of tax cuts and new spending to prop up the country’s recovery.
The mission was to counter the more lukewarm, and even critical, reactions to the speech from large business lobbying organisations such as the US Chamber of Commerce, which has been arguing for more conservative economic policies focused on lower taxes and lower regulation.
The White House plan – if passed – should have a positive impact on the fortunes of America’s largest companies by supporting demand throughout next year and providing some additional incentives for job creation.
An analysis by Mark Zandi, the economist at Moody’s Analytics, found that Mr Obama’s proposals would add 2 percentage points to economic growth next year, add 1.9m jobs and shrink the unemployment rate by 1 percentage point.
According to Mr Zandi, this would “help stabilise confidence and keep the US from sliding back into recession”.
But the plan’s design is more targeted at small businesses than at the largest companies, reflecting the administration’s view that big companies have emerged in much better shape from the financial crisis than their smaller counterparts.
“We think economically there is a significant differentiation between the largest companies, which are sitting on significant cash, and many of the smaller companies which have faced a perfect storm in terms of more difficulty getting working capital,” a senior Obama administration official said.
For instance, one of the plan’s main features is a cut in Social Security payroll taxes for employers from 6.2 per cent to 3.1 per cent. This is capped at the first $5m of wages, which prevents the top 2 per cent of US companies in terms of size from taking full advantage of the measure.
In addition, there is a full exemption from the payroll tax for any additional wage increases or new workers added by a company. But that too is limited to the first $50m in payroll increases.
Significantly, there is no tax reduction on repatriated overseas profits, which US multinationals, such as Cisco Systems, have been clamouring for.
But some small business owners surveyed on Friday did not seem particularly impressed with the plan, despite the White House’s attempt to focus on their revival.
“There’s nothing in that speech that, as a small-business owner, gives me the confidence to say I should put my capital at risk,” said Joe Olivo, president of Perfect Printing, a family-owned company in Moorestown, New Jersey.
Mr Olivo, whose company has 45 employees and annual sales of about $8m, said business was up by one-fifth from last year, and he would normally be hiring. However, he is concerned about the looming costs of healthcare reform and other regulations.
Seth Guterman, president of Empower Systems, a 12-year-old Chicago company with 50 employees that makes medical record-keeping software, is frustrated that the president failed to mention the continuing inability of start-up businesses to secure credit from banks.
“If I could get my bank to lend me more credit, I could hire more staff,” he said. Dr Guterman welcomed the focus on infrastructure spending, but said there was little in the proposal that would help him. “This plan is good for the working class, but isn’t going to make a big difference to entrepreneurs,” he said.
Meanwhile, advocacy groups for small business were split on the impact of the plan. “Providing a 50 per cent cut of the payroll tax and a complete payroll tax holiday for new hires is a positive and immediate step that will help millions of small businesses and their employees,” said Todd McCracken of the National Small Business Association.
But Dan Danner, of the typically more conservative National Federation of Independent Business, said: “Small-business owners needed to hear something bold from President Obama tonight, but instead just heard more of the same.”
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