U.S. and President’s Proposals for Boosting Economy, Jobs
On September 12, 2011, the White House released legislative text of President Obama’s proposed “American Jobs Act”1 — the $447 billion economic stimulus that includes several revenue offsets, including one of key interest to U.S. taxpayers on international assignment.
• Limit to 28 percent the value of certain deductions and exclusions for those who earn more than $200,000/$250,000 (single/joint filers).
KPMG Note
Limiting the benefit of itemized deductions to 28 percent has been proposed frequently. However, the new bill proposes to extend this limitation to certain “above the line” deductions and to certain exclusions, including the foreign earned income exclusion provided by Internal Revenue Code section 911. This may have the effect of increasing the cost of sending U.S. employees on assignment.
• Eliminate preferential rate on carried interests.
• Repeal various oil and gas incentives.
• Modify corporate jet depreciation.
• Modify taxation of dual capacity taxpayers.
Key Proposals
Increase Temporary Payroll Tax Cut for Employees in 2012 – President Obama’s $447 billion American Jobs Act would increase the temporary 2-percent payroll tax cut to 3.1 percent for 2012 and expand it to the employer share for the first $5 million in wages, according to the White House (more on that below). (For prior coverage, see Flash International Executive Alert 2010-206, December 17, 2010.)
Business Expensing Provisions to Be Extended – It also would extend for one year the 100-percent business expensing provision that is effective for 2011.
Reduction in Employer Share of Payroll Tax – The proposals include elimination of the 6.2-percent employer share of payroll taxes to the extent that firms increase their payroll by adding new workers or increasing the wages of their current workers, capped at $50 million in payroll increases.
Employers to Get Tax Credit for Hiring Unemployed – The administration also backs proposals to give a $4,000 tax credit to employers for hiring long-term unemployed workers, a $5,600 tax credit for hiring unemployed veterans, and a $9,600 tax credit for hiring unemployed veterans with service-connected disabilities.
Further Steps and Reactions
The tax provisions comprise more than $250 billion of the president’s plan, which he outlined to a joint session of Congress on September 8.
Obama said that by September 19 he would specify revenue offsets, among them “tax breaks and loopholes” that benefit “a few of the most affluent citizens and corporations.” The president told Congress the choice was to maintain “loopholes for oil companies” and “tax breaks for millionaires and billionaires,” or give tax credits for new hires and fund teacher salaries. “Right now, we can’t afford to do both,” he said.
House Republican leaders responded cautiously. Speaker John Boehner (OH) said the proposals “merit consideration.” Majority Leader Eric Cantor (VA) tweeted, “We can focus on areas of common ground to provide results for 10s of millions of Americans out of work/struggling paycheck to paycheck.”
Source: KPMG