President Obama’s American Jobs Act proposal includes many tax cuts, credits

On the evening of September 8, 2011 President Barack Obama proposed a $447 billion package of tax cuts and spending initiatives to spur economic growth as he outlined his American Jobs Act to a joint session of Congress. Many of the items included in his speech have been proposed and debated over the last several years, with some previously enacted on a smaller scale. The major difference in this current proposal is the size and magnitude of the tax breaks.

The president proposed broad tax reform but offered few specifics. He did say the plan's cost would be entirely offset, but did not provide the details of how this would be done. That aspect of the plan will be outlined in a follow-up proposal to be delivered on Sept. 19, which, according to the president, will cover cost offsets for this jobs bill and efforts to stabilize the country's debt in the long run.

The proposed tax cuts include:

  • A 50 percent reduction of the 6.2 percent payroll tax for employers for each business's first $5 million in wages
  • A full payroll tax holiday for any increase in payroll up to $50 million, whether achieved by adding workers or increasing wages of existing employees
  • A $4,000 tax credit to businesses that hire long-term unemployed workers
  • Tax credits (from $5,600 to $9,600) for hiring unemployed or wounded veterans
  • A reduction in the employee share of the 6.2 percent payroll tax to 3.1 percent, resulting in an average $1,500 tax cut for each family
  • Extension of the current 100 percent bonus depreciation rules through 2012 (the current bonus depreciation rules are set to expire on Dec. 31, 2011)
  • Reform of the Internal Revenue Code to reduce tax breaks and loopholes for affluent taxpayers, but with few details

As mentioned by the president, many of the proposed provisions are enhancements to existing cuts or programs, while others have been proposed in legislation previously introduced by members of both parties. For example, the HIRE Act provided a $1,000 tax credit for hiring long-term unemployed, while the American Jobs Act would increase that credit to $4,000.

Given the scope of these proposals and their current sparse detail, the American Jobs Act will certainly be the subject of extensive debate and analysis in coming weeks, and we will provide additional detail as it becomes available. Presumably, employers will welcome the additional cash flow gained through the proposed credits and deductions.