Tax cuts target small businesses

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President Obama's new jobs plan includes a payroll-tax plan that focuses on benefiting small businesses, which have been held back by the economy and are crucial to boosting hiring, according to The Wall Street Journal.

The plan temporarily would halve the employer's portion of the payroll tax from 6.2 percent to 3.1 percent on the first $5 million of a firm’s payroll in 2012. About 98 percent of firms have payrolls of $5 million or less, so the benefit would target smaller businesses.

"We think economically there is significant differentiation between the largest companies that are sitting on significant cash and many smaller companies that have faced a perfect storm in terms of more difficulty getting work and capital," said a senior administration official during a briefing before Obama's Sept. 8 speech.

Additionally, the plan completely would eliminate payroll taxes for firms that increased their payrolls by adding new workers or increasing wages for current workers. That new tax break would be limited to the first $50 million of a firm's payroll increases measured against the previous year.

The administration estimates the total budget cost of the two payroll-tax breaks would be about $65 billion in 2012. The tax breaks would be paired with a one-year extension and expansion of the temporary payroll-tax break for workers, which would place $175 billion into the economy.

The White House says the new tax break is worth about $1,500 for a typical family.

The tax cuts face some resistance from some Republicans and small-business advocates who oppose more temporary tax breaks. Also, despite the fact that the administration says the plan will not affect Social Security, some Democrats are hesitant to reduce taxes that are paid to support Social Security.

9/14/2011

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