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Here's another decision facing U.S. President Barack Obama: Whether to expand tax breaks for businesses in poor areas plagued with high unemployment rates.

Benefits targeting what are known as empowerment zones, begun in 1993 under the Clinton administration and expanded twice since then to a total of 80 urban and rural areas, are set to expire on Dec. 31. The Obama administration's budget calls for extending the tax benefits for just one year, through 2010, while bills introduced in the House and Senate would continue benefits through 2015.

Department of Housing and Urban Development Secretary Shaun Donovan is open to extending the tax incentives for two years or longer, Nelson Bregon, HUD's assistant secretary for community planning and development, testified Wednesday at a House Ways and Means subcommittee hearing.

While use of the tax breaks since 2002 has fallen short of projections by the congressional Joint Tax Committee, businesses would be more likely to take advantage of them if they knew the incentives would be in place for several years, Bregon said.

Accelerated deductions for some equipment purchases, favorable treatment on capital gains and an employer tax credit of up to $3,000 a year for each employee who lives in a designated "empowerment zone" or "renewal community" are available to qualifying firms under the existing program.

HUD estimates 300,000 companies qualify for the employee tax credit, which is being used by companies such as Dell Inc. (DELL), Marriott International Inc. (MAR) and Toyota Motor Corp. (TM), along with small retailers, restaurants and manufacturers.

Alabama-based American Apparel Inc. (APP), which makes military uniforms, used the tax credits to keep employees in Selma, a designated empowerment zone, rather than shipping work offshore, Carl Barranco, its secretary and treasurer, told the House panel. He called for long-term extension of the tax breaks, saying "businesses can't plan for one year."

Other reasons for the tepid business response to the tax credits include concerns about robbery and vandalism, poor public-transit options, and a slack economy that has curtailed equipment purchases and hiring.

There is evidence that the program has fallen short of expectations. Congress provided $3.8 billion of tax breaks for building or rehabilitating commercial or industrial buildings in distressed areas; HUD estimates about 45% of the funding has been tapped so far.

Businesses have been less enthusiastic about a bond facility for firms with at least 35% of their employees residing in designated zones. So far, HUD said $643 million of these bonds have been issued, just 16% of the total authorized.

Employers blame the restrictions on bond issuers, saying they can't control where their employees live, or stand in employees' way if they want to move to a better location. Some community advocates urged Congress to take a more flexible approach, allowing such bonds to be issued if 20% of a firm's employees reside in zones targeted for revitalization.

Rep. Richard Neal, D-Mass., who chairs the House Ways and Means panel on select revenue measures, said he would like to extend the revitalization tax credits along with other credits for research and development.

"I think, for predictability purposes, businesses need a long-term window," Neal told Dow Jones Newswires. He said business owners say they would be more likely to relocate to distressed areas if tax benefits were in effect for five to seven years, but acknowledged that expansion of the tax benefits may be constrained by the mounting federal budget deficit.

Some lawmakers think the weak U.S. economy strengthens the case for assistance to distressed areas, though. Rep. Artur Davis, D-Ala., sponsor of the House empowerment zone bill, H.R. 1677, noted that unemployment exceeds 20% in parts of Alabama and that the tax credit is "a targeted, specific, tangible thing we can do" to rebuild employment. The companion Senate bill, S. 1222, is sponsored by Sen. Blanche Lincoln, D-Ark.

-By Judith Burns, Dow Jones Newswires; 202-862-6692; Judith.Burns@dowjones.com