Throw this on the Labor Day grill: tax cuts for small business

This Labor Day weekend, the jobs outlook appears about as inviting as leftover potato salad. But President Obama found encouragement Friday in the jobs report for August.

Despite an uptick in the unemployment rate to 9.6 percent and an overall loss of 54,000 jobs (goodbye, census workers), the private sector actually created 67,000 jobs last month. That’s considerably more than economists expected, and the eighth month of private-sector increases.

“Jobs are being created. They’re just not being created as fast as they need to,” Mr. Obama said. “We just have to speed it up.”

No argument there. Indeed, it will take 125,000 new jobs a month just to match the growth in the number of available workers.

The president will lay out some ideas on that next week, including, reportedly, tax relief for small businesses, which drive job growth. Tax cuts would represent a move away from the White House strategy of stimulus spending for government-created jobs.

To date, the administration and Congress have followed mostly Keynesian principles that prescribe pumping in government money when the economy needs resuscitating.

Money from the 2009 Recovery Act, which cost an estimated $814 billion, helped state and local governments keep public employees on the payroll, assisted the unemployed, paid for infrastructure projects, and provided individual and business tax breaks.

According to the independent Congressional Budget Office, the Recovery Act preserved or created 1.4 million to 3.3 million jobs in the second quarter.

But it did not produce a “recovery summer,” as promised. Some argue that the Greek debt crisis threw a wrench into the weak recovery by upsetting the stock market, which then drove down consumer confidence. Others maintain that stimulus was the wrong tool – what was needed was the kind of tax relief that the Obama administration is apparently now considering.

One idea is a temporary tax holiday for small businesses. It would provide employers relief from paying Social Security and other taxes on workers, making hiring less costly. Depending on factors such as how long the tax holiday would last – if it’s too short, it won’t overcome business anxiety about the longevity and strength of a recovery – it could cost the federal budget more than $300 billion.

The administration is also talking about permanently restoring the expired research-and-development tax credit. That incentive rewards companies that research new technologies at home in the United States. That could cost about $100 billion over the next 10 years.

Given sluggish economic growth and stubborn joblessness, one would hope that Obama could find bipartisan support for helping businesses hire and grow in America. He should be able to, if he also offers a way to pay for his ideas. That’s important to voters who worry about deficit pile-on.

Even if Obama can balance the math, the president may not be able to balance the politics. The subject of tax cuts generally has become a wedge issue for the November elections.

Republicans argue that all of the Bush-era tax cuts – set to expire at the end of this year – should be extended. Obama wants to extend tax relief for only those families earning less than $250,000. It’s time for the rich to pay up, the president says, but Republicans respond that “the rich” also includes many small-business owners, who would be hurt by a tax increase.

Would GOP lawmakers accept payroll-tax relief for small businesses in exchange for Obama’s approach to the Bush tax cuts? Or would they prefer to have his planned tax increase on high earners as a campaign theme?

Would Democrats be willing to cut government spending in order to pay for the kind of business tax cuts the president has in mind (if, indeed, he asks them to make such a sacrifice)?

This is the kind of wrangling that voters can expect to see over the coming weeks. What they want, however, is less wrangling, more jobs.