President Barack Obama’s new jobs plan seeks to coax wary employers to invest and hire more by slicing their share of payroll taxes next year.
But while the payroll-tax cuts figure to appeal to Republican lawmakers, and House Majority Leader Eric Cantor spoke favorably about the idea Thursday, the cuts face some resistance. Many Republicans and even some small-business advocates are opposed to more temporary tax breaks. Some liberal Democrats are nervous about reducing the taxes that are paid to support Social Security, even though the administration promises its plan would have no impact on the program.
The new White House plan would halve the employer’s share of the payroll tax temporarily—to 3.1% from the current 6.2%—on the first $5 million of a firm’s payroll in 2012. About 98% of firms have payrolls of $5 million or less, the White House said in materials distributed before the speech, meaning that this benefit would be targeted at smaller businesses. The administration described that provision as “broad tax relief” for businesses to hire and invest.
In addition, its plan would completely eliminate payroll taxes for firms that increased their payrolls by adding new workers or increasing wages of current workers. That new break would be limited to the first $50 million of a firm’s payroll increases, measured against the prior year.
The new payroll-tax plan blends policy and politics, focusing its benefit on a constituency—small-business owners—that is crucial to spurring new hiring, and also is well-represented among the independent voters who have lost confidence in Mr. Obama’s economic leadership. A White House aide said the focus is justified, because smaller businesses in many cases have been held back by economic headwinds.
“We think economically there is significant differentiation between the largest companies that are sitting on significant cash, and many smaller companies who have faced a perfect storm in terms of more difficulty getting work and capital,” a senior administration official said during a briefing for reporters before the speech.
Mr. Cantor (R., Va.), speaking at a Christian Science Monitor lunch with reporters, said that while a current payroll-tax break for employees might not be boosting employment much, giving a break to employers is “much more of an incentive for employers to begin to weigh the risk of hiring.”
The total budget cost of the two payroll-tax breaks for employers would be about $65 billion in 2012, the administration estimates. They would be coupled with a one-year extension and expansion of the temporary payroll-tax break for workers, which would put $175 billion into the economy.
The current version of that break is set to expire at the end of 2011. The White House said the new break is worth about $1,500 for a typical family.
Some Republicans have been pushing to permanently lower tax rates, although progress on a tax-code overhaul has been slow.
Write to John D. McKinnon at firstname.lastname@example.org