WASHINGTON (AP) — President Barack Obama is doubling down on a payroll tax cut for workers and small businesses, hoping it will do more to revive the job market than a smaller version has done this year.
Obama wants to extend and expand a payroll tax cut that is scheduled to expire at the end of the year. The current tax cut, which applies only to workers, reduces Social Security taxes from 6.2 percent to 4.2 percent. Employers still pay the 6.2 percent rate, which is applied to wages up to $106,800.
Appealing to Republicans in Congress who usually favor tax cuts, Obama proposed Thursday to extend the tax cut for a year and make it bigger — reducing the Social Security taxes paid by workers to 3.1 percent. Obama’s plan would also reduce Social Security taxes paid by small businesses from 6.2 percent to 3.1 percent.
The tax cut is part of a package of nearly $450 billion in tax reductions and new federal spending that Obama unveiled Thursday night in an effort to revive the weak economy as he embarks on a tough re-election fight.
Obama told a joint session of Congress Thursday that his plan “will provide a tax break for companies who hire new workers, and it will cut payroll taxes in half for every working American and every small business. It will provide a jolt to an economy that has stalled, and give companies confidence that if they invest and if they hire, there will be customers for their products and services.”
The goal is to increase take-home pay for workers in the hope they will spend the money, creating more demand for consumer goods and services. Workers making $50,000 a year would see their take-home pay boosted by $1,550; those making $100,000 would get $3,100.
Economists say the president’s jobs package could go a long way toward preventing the economy from getting worse, but it might be asking too much for the package to significantly boost job growth.
“The thing that is going to induce firms to hire is having demand for their product,” said Roberton Williams, a former tax analyst at the Congressional Budget Office who is now a senior fellow at the Tax Policy Center. “If they see brighter skies ahead, they’ll start hiring people to meet the demand. But until they see the promise of that, they are going to be very leery of expanding their payroll, and it doesn’t matter whether you’re subsidizing the cost of hiring a new worker, or subsidizing the cost of an investment.”
Obama also wants to renew and expand an expired tax credit for companies that hire unemployed workers and veterans, and extend tax provisions that enable companies to more quickly write off the cost of new equipment. Combined with spending initiatives — extended unemployment benefits, a major school construction program and aid to local governments — the package would total nearly $450 billion.