On Thursday, September 8, President Obama announced his proposal for a tax incentive-based program for creating more jobs -- the American Jobs Act. This plan focuses on new and extended reductions in payroll taxes for both employees and employers, along with a separate credit for hiring the unemployed. The 100% write off for certain capital expenditures in effect for 2011 would also be extended through 2012 under this proposal. While no specific provisions were discussed with respect to how these benefits would be paid for, the President indicated that the revenue offsets would include tax increases for higher-income taxpayers and a repeal of other targeted corporate tax breaks.

Payroll taxes

The proposals relating to the reduction of payroll taxes were broad. Last year, a reduction in the employee portion of Social Security taxes from 6.2% to 4.2% was implemented for 2011. The President proposed extending this tax break through 2012, and reducing the employee’s portion even lower, to 3.1%. A similar reduction would likely apply to self-employment taxes.