WASHINGTON: US President-elect Barack Obama and Congressional Democrats are crafting a plan to offer about US$300 billion (S$442 billion) in tax cuts to individuals and businesses, a move aimed at attracting Republican support for an economic-recovery package and prodding companies to create jobs, the Wall Street Journal said.

The size of the proposed tax cuts is greater than many from both political parties in the United States had anticipated. The tax cuts would amount to about 40 per cent of Mr Obama's recovery package, which could reach US$775 billion over two years. The remainder of the money would be spent mainly on public works to create jobs and on health and jobless benefits doled out by state governments.

The plan would attempt to boost consumer demand by spending US$140 billion on tax breaks worth US$500 for individuals and US$1,000 for couples, according to a Democratic aide. The change would come by altering tax-withholding rules, rather than through a rebate cheque as with the Bush stimulus plan enacted last year, so that workers would see an immediate increase in take-home pay.

The US$500 tax credit would apply to the first US$8,100 of wages, meaning a worker who earns US$24,400 a year and is paid twice a month would get US$60 extra per pay cheque for four months.

For businesses, the aide said, measures similar to those in past stimulus Bills will be used, like allowing firms to get refunds for taxes paid in any or all of the last five years by deducting losses incurred now; the losses can currently be carried back only two years.

Congress is also likely to include incentives such as accelerated depreciation to encourage companies to buy equipment now rather than defer such investments. The plan also attempts to combat joblessness by offering companies tax breaks for hiring more workers, the aide said

The Obama tax-cut proposals, if enacted, could pack more punch in two years than either of President George W. Bush's tax cuts did in their first two years, said the Journal.

Mr Bush's 10-year, US$1.35 trillion tax cut of 2001, considered the largest in history, contained US$174 billion of cuts during its first two full years. The second-largest tax cut - the 10-year, US$350 billion package engineered by Mr. Bush in 2003 - contained US$231 billion in 2004 and 2005.

Mr Obama intended to discuss the plan yesterday in meetings with congressional leaders from both political parties in Washington.

House Speaker Nancy Pelosi, a Democrat, 'is supportive' of Mr Obama's proposed tax relief, most of which would be directed at the middle class, but details must be worked out, an aide said.

Congressional leaders say any package will not be ready until mid-February at the earliest - almost a month later than the President-elect wanted. Mr Obama had hoped to have Congress enact the recovery plan in time for him to sign when he takes office on Jan 20. But his spokesman Robert Gibbs conceded on Sunday night that this was 'very, very unlikely'.

House Majority Leader Steny Hoyer said on Sunday that he wants the House to approve the plan by the end of the month, sending it to the Senate in time for action before Congress leaves on its mid-February break.

BLOOMBERG NEWS, REUTERS

With additional information from the Wall Street Journal

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