Obama has proposed tax incentives and credits, expanded government loan programs and aid to community banks that he said will help small businesses hire new employees, reported Bloomberg News.

The president’s plan would eliminate capital gains taxes on small businesses in 2010 and give small businesses a $5,000 tax credit for every new job created. In addition, $30 billion from repaid bank bailout money would be distributed to community banks to spur small business lending, said the Associated Press.

The plan would also temporarily increase the cap on Small Business Administration loans from $350,000 to $1 million and expand the SBA program to help refinance commercial real-estate loans, said the AP. All of the proposals would need to be approved by Congress.

The unemployment rate has finally dipped just below 10 percent, but with the public deeply frustrated by sluggish job growth, the administration is refocusing its efforts on job creation.
“Government can’t create these businesses, but it can give entrepreneurs the support they need to open their doors, expand, or hire more workers,” Obama said in the radio address.

How is small business defined?
A small business that employs one to 100 people will be able to participate in a health insurance exchange. But until 2016, states can limit the small-group market to firms with 50 or fewer employees.

What is a health insurance exchange?
States must set up a so-called Small Business Health Options Program (a “SHOP Exchange”) through which small companies can buy insurance. Plans offered on the exchange would have to be standardized for easy comparison and offer a minimum level of benefits. Starting in 2017, businesses with more that 100 employees can participate in the health exchange.

How will an exchange help small businesses?
Insurers would have to treat small business groups as members of a single risk pool – the bigger the pool, the lower the cost. Beginning in 2014, insurers could not exclude a person based on his health status and could vary premiums only by geography or age. All insurers would have to provide a minimum benefits package defined by law, and there would be limits an employee’s annual deductible, said Mandelbaum.

What about the employer mandate?
The smallest firms will not be forced to buy health insurance for employees. In most cases, companies with more than 50 full-time workers that do not offer insurance would be subject to a penalty of $750 a year for every full-time employee.

Small-business tax credits. From 2010 through 2013, very small businesses would receive a tax credit to offset 35 percent of their health insurance costs, provided the firm contributes at least half of the premium. Then, for the first two years the firm buys insurance through an exchange, the credit increases to 50 percent. The full credit is available to firms with the equivalent of 10 or fewer full-time workers paid, on average, less than $25,000; it phases out as the payroll, excluding seasonal workers, grows to 25 and wages rise to $50,000, said Mandelbaum.

The president’s 2010 budget plan doubles funding for the Community Development Financial Institutions fund, which helps provide loans to small businesses and consumers in disadvantaged communities that lack access to affordable credit, reported the Wall Street Journal.

The tax credit program, funded by the economic stimulus package, will reward private sector companies that invest in energy, education, health care and manufacturing projects to create jobs in low-income areas. The credit would cover 39 percent of the cost of the investment over a seven-year period.

Small businesses are disproportionately burdened by the financial strains caused by rising health care costs. On average, small businesses pay up to 18 percent more than large firms for the same health insurance policy. This difference is due in part to high broker fees, which can be up to 10 percent of premiums, and administrative costs that can be three times those in the large group market, according to a press release from HHS.

Nearly half of workers covered by a small business employer have insurance that limits the total amount the plan will pay for medical care and nearly one in 10 small business workers have a health plan that does not offer prescription drug coverage, said HHS.

Health insurance reform will bring down costs for small businesses by creating a health insurance exchange, providing a tax credit for small businesses that provide health insurance and preventing arbitrary premium hikes. Reform will also ensure Americans have stable, secure insurance coverage, limit out-of-pocket spending and eliminate caps on benefits, according to the report.

The National Federation of Small Businesses is approaching health care reform cautiously and remains opposed to employer mandates and a public option.

Visit www.HealthReform.gov to find out more.

At the end of trading on Friday, however, that gain was erased by another Commerce Depart report that said consumer spending dropped in September by the largest amount in nine months, according to the the New York Times.

The Dow Jones dropped nearly 250 points, or 2.5 percent.

The U.S. economy expanded by 3.5 percent between July and September, and household purchases rose 3.4 percent, according to the Thursday Commerce Department figures.

Much of the growth was attributable to government incentives such as the “cash-for-clunkers” program which spurred consumer spending on automobiles and an $8,000 tax credit for first-time homebuyers.

Purchases of durable goods, including autos, jumped 22 percent, and residential construction rose 23 percent in the last quarter, reported Bloomberg News.

That trend was reversed when the cash-for-clunkers program ended in September, said the New York Times.

Unemployment figures also remain dismal, leading President Obama to say the economy has “a long way to go” before it makes a full recovery.

The jobless rate reached a 26-year high of 9.8 percent in September, up from 7.6 percent when Obama took office in January, Bloomberg reported. Many economists predict the unemployment rate will top 10 percent in 2010.