Obama to propose permanent research tax credit

President Obama delivers remarks on the latest employment statistics, alongside Treasury Secretary Tim Geithner in the Rose Garden of the White House, September 3, 2010.

WASHINGTON (Reuters) - President Barack Obama will ask the Congress on Wednesday to increase and permanently extend a tax credit for business research as a way of boosting job growth, an administration officials said on Sunday.

The proposal would cost $100 billion over 10 years, and Obama would pay for the plan by closing other corporate tax breaks, said the officials, who spoke on condition of anonymity.

The Obama administration is scrambling for solutions to tackle a 9.6 percent unemployment rate and invigorate an economy whose recovery from the worst recession in 70 years is in danger of stalling, with congressional elections looming.

Obama, who is to lay out this plan and other initiatives in a speech in Cleveland on Wednesday, is trying to both create jobs and help his Democrats hang on to control of Congress in November 2 elections, when Republicans are poised to pick up seats and possibly take command of the House of Representatives.

U.S. television political talk shows featured debates on tax cut proposals on Sunday, the middle of a Labor Day holiday weekend that marks the informal start of the election campaign season.

University of California economics professor Laura Tyson, a member of the president's economic advisory board, said targeted job policies such as a partial payroll tax holiday and permanent tax cuts for research and development should be priorities in the current environment.

"All of us here agree we need targeted policies for jobs and right now the deficit is not a major issue," Tyson told CBS's "Face the Nation" program. "The major issue is a slow economy, lack of jobs ... we really need to get our priorities right and focus on targeted job creation."

"BUMPING ALONG" VS "FLAILING"

Growth, which had been fueled by a record $814 billion government stimulus program, has slowed sharply, raising alarm in financial markets the economy was sliding back into recession.

"I think we are in a situation where we are bumping along at a slow rate. There is a lot of downside risk," said Tyson.

The measures that Obama is set to announce could also include extending middle-class tax cuts, investing in clean energy, spending more on infrastructure, and delivering more tax cuts to businesses to encourage hiring.

Republican Senator John McCain told Fox News the Obama administration was "just flailing around" with economic policies that had created uncertainty among businesses and investors.

"The first thing we need to do is extend the tax cuts that are in existence so people have that certainty," said the Arizona senator, referring to tax cuts enacted by President George W. Bush.

"The point is that the Obama Keynesian on steroids has not worked. The economic policies have failed," said McCain, who lost the 2008 presidential election to Obama but predicted a strong showing by Republicans in November because of the struggling economy.

Democratic Party Chairman Tim Kaine defended the Obama administration's economic record, telling Fox: "The GDP, which was shrinking, is now growing."

But he acknowledged the economy is "not growing fast enough" and said Democrats were focusing on how to help small businesses.

"Let's target the tax credits to middle-class folks and to small businesses, but especially let's target the tax credits to where they will do the most good, where they will have the most likelihood of increasing economic activity," said Kaine.

The White House cautioned on Friday that these steps should not be seen as a second stimulus package. Lawmakers are in no mood to approve a big new spending plan that would add to the fiscal deficit.

Obama will call on Congress to increase to 17 percent from 14 percent one of two credit options available to businesses, the officials said.

(Additional reporting by Lucia Mutikani; editing by Philip Barbara)