President Obama recently proposed legislation that would reward companies for hiring new employees, while essentially raising taxes on the wealthiest individuals. The American Jobs Act of 2011 would lower payroll taxes, offer tax credits for hiring long-term unemployed individuals and extend 100 percent bonus depreciation, while also limiting deductions for high-income individuals, among other offsets.
In a speech Monday at the White House, Obama said the bill would help reduce the federal deficit by $3 trillion over the next 10 years. “We can’t just cut our way out of this hole,” he said. “It’s going to take a balanced approach. If we’re going to make spending cuts … then it’s only right that we ask everyone to pay their fair share.”
Republicans have criticized the bill as “class warfare.”
Much of the $3 trillion in savings will come from reduced military spending in Afghanistan and Iraq, as well as changes in Medicare and Medicaid. The White House estimates that the rest of the savings would come from increased revenue – by creating more jobs and raising taxes on high-income individuals.
Tax considerations in the American Jobs Act of 2011 include:
Payroll tax cuts. The bill would reduce the employee-side payroll tax to 3.1 percent in 2012, down from 4.2 percent in 2011 and 6.2 percent in 2010. It also would lower the employer-side payroll tax to 3.1 percent on the first $5 million in wages paid in 2012, and it would provide a 100 percent payroll tax credit on any increase in payroll taxes from 2011 to 2012 (up to $50 million in increased wages).
Tax credits for hiring individuals who have been unemployed for at least six months, as well as unemployed veterans. The credit for hiring a long-term unemployed individual will generally be $4,000, and the various credits for hiring unemployed veterans will range from $2,400 to $9,600.
Extending 100 percent bonus depreciation through 2012. It is currently set to expire at the end of 2011.
A cap on itemized deductions for high-income individuals and families. Obama’s plan defines high-income individuals as those with an adjusted gross income (AGI) of at least $200,000 and married couples with a combined AGI of at least $250,000. His proposal would limit the value of all itemized deductions to 28 percent for high income individuals. The White House estimates that this will raise $400 billion in additional tax revenue over the next 10 years.
Obama will be in Cincinnati on Thursday to lobby for the bill.
Our tax specialists will continue to monitor the situation and keep you abreast of any changes.