American Jobs Act Introduced

September 14, 2011

Last week, President Barack Obama announced the American Jobs Act (S.1549), a proposal crafted by the administration with the goal of spurring job growth, which was formally introduced this week by Senate Majority Leader Harry Reid (D-Nev.) Although most signs are leading to the bill not likely being endorsed by Congress in its entirety, there are a number of provisions in the bill that stand to help small business.

The proposal would halve, from 6.2 percent to 3.1 percent, the employer’s portion of the payroll tax for existing employees, and employers with expanding payroll—due to new hires or wage increases—would be given a full payroll holiday on the amount of payroll that exceeds the previous year, up to $50,000. Employees also will receive a 3.1 percent reduction of their payroll taxes for 2012, beyond the current two percent reduction that was passed last year.

NSBA has been urging a payroll tax holiday for some time, and, though only temporary, this could be helpful to small-business owners who are on the fence when it comes to hiring additional employees.

All employers could use the payroll tax holiday on their first $5 million in payroll, and the holiday is only good for 2012. Employers would get a tax credit of $5,600 for hiring a returning veteran who has been unemployed for six months, and a credit of up to $9,600 for hiring a service-disabled veteran.

Often absent from the ongoing debate over tax cuts, credits and deductions is the fact that most of these are income-based tax reductions: meaning only profitable small businesses will benefit.  In contrast, a payroll tax holiday as proposed by the President will help all small employers—not just the profitable ones who benefit from an income tax cut—with some much-needed cash while at the same time making it a bit more affordable to bring on new employees.

The criticism has been made—and is a fair criticism—that a payroll tax holiday will not be enough to cause a small-business owner to hire who otherwise would not. However, for those small businesses on the fence, it could be enough incentive for them to hire that person and take advantage of the extra cash-in-hand.

In addition to the payroll tax cut, the American Jobs Act would expedite payments to small federal contractors, from an average of 30days currently to an estimated 15 days. The bill also would repeal the three percent withholding provision—something NSBA has pressed Congress to do for quite some time. The bill also will extend for one year the expanded section 179 expensing for small businesses.

Unfortunately, there are several problematic sections in the bill, including a limitation to certain itemized deductions which would cap the value at 28 cents per dollar, down from 35 cents. Additionally, the law includes a provision that prohibits discrimination against unemployed, but could have the adverse effect of increased potential for litigation for small businesses that actually are hiring.