It will be the first of several election-year jobs bills promised by Democrats to be enacted into law, though there's plenty of skepticism that the measure will do much to actually create jobs. Optimistic estimates predict the tax break could generate perhaps 250,000 jobs through the end of the year, but that would be just a tiny fraction of the 8.4 million jobs lost since the start of the recession.
The measure is part of a campaign by Democrats to show that they are addressing the nation's unemployment problem, but that message was overshadowed by Congress' feverish final push to pass health care overhaul legislation by this weekend.
"It is the first of what I hope will be a series of jobs packages that help to continue to put people back to work," Obama said after the vote.
The bill which passed Wednesday contains about $18 billion in tax breaks and a $20 billion infusion of cash into highway and transit programs. Among other things, it exempts businesses that hire the unemployed from paying the 6.2 percent Social Security payroll tax through December and gives employers an additional $1,000 credit if new workers stay on the job a full year. Taxpayers will have to reimburse Social Security for the lost revenue.
"This is just the first, certainly not the last, piece of legislation that we will put forward in relation to jobs," said sponsor Charles Schumer, D-N.Y. "If we don't create jobs, the economy will not move forward."
It also extends highway and mass transit programs through the end of the year and pump in $20 billion in time for the spring construction season. That money would make up for lower-than-expected gasoline tax revenues.
The measure is modest compared with last year's $862 billion economic stimulus bill, and the bulk of the hiring tax breaks would probably go to companies that were likely to hire new workers anyway.
"Most businesses that are going to be able to take the credit were probably going to hire the worker anyway," said Bill Rys of the National Federation of Independent Business, which lobbies for small business. "Until business picks up for small business owners, there's not going to be a huge incentive to add new workers."
Much of the bill is financed over the coming decade by cracking down on offshore tax havens, though it would add $13 billion to the debt in the coming three years.
"When are we going to stop spending money around here as if there's no tomorrow?" said Sen. Judd Gregg, R-N.H. "Because pretty soon there's going to be no tomorrow for our children as we add this debt to their backs."
In addition to the hiring tax incentives and highway funding, the bill extends a tax break for small businesses buying new equipment and modestly expands an initiative that helps state and local governments finance infrastructure projects.
A far larger measure that would extend health insurance subsidies and jobless checks for the unemployed is in the works but has hit slow going. That measure has passed both House and Senate but is hung up as the rival chambers wrangle over how to partially finance the legislation, which also would extend a variety of tax breaks for individuals and businesses.
As a result, it may require a third temporary extension of unemployment benefits, which would otherwise expire at the end of this month.
The Senate vote comes as the House Ways and Means Committee is scheduled to vote on a bill Wednesday that lawmakers hope will generate jobs through infrastructure spending and tax cuts for investing in some small businesses. The bill would exempt long-term investments in certain small businesses from capital gains taxes, and would expand the Build America Bonds program, which subsidizes interest costs paid by local governments when they borrow for construction projects.
The bond program would be extended through June 2013, at a cost of $7.6 billion. The entire bill would cost about $17 billion over the next decade.
Much of the bill would be paid for by limiting the ability of multinational corporations to avoid U.S. withholding taxes by shifting assets among foreign countries. The bill would also make it easier for the federal government to withhold payments from government contractors that owe back taxes.