Update: The Buffett Rule, if implemented, could help pay for the American Jobs Act.
As long as the public holds the general impression that economy isn’t favorable, and that’s certainly the case, for example, when unemployment is high or after a stock market crash, political leaders will propose stimulus plans to help move the country in a more favorable direction. The focus of the 2011 stimulus package is jobs, with unemployment a lagging factor in today’s economy. President Obama has pitched his 2011 stimulus plan with a total cost of $447 billion and is looking for Congress to quickly sign off on the plan to boost the economy.
There are politics at work here, of course, with an election looming next year and one political party eager to blame the other for the inevitable fact that the economy won’t look great by the time citizens in the United States head to the polls.
There is no stimulus check for American citizens this time, but here is what is included in the $447 billion 2011 stimulus package called the “American Jobs Act.”
- Cut the payroll tax in half. Today, employees pay 4.2% on the first $106,800 of wages, an already-reduced rate from the normal 6.2%. The 2011 stimulus proposal would reduce the payroll tax to 3.1%. The proposal would also reduce the payroll tax rate paid by businesses to 3.1% on the first $5 million paid in wages.
- Payroll tax exemptions for new hires and raises. Any new hire will be exempt from payroll taxes, both from the employee and the business side. The same is true for any employee who receives a raise; they will be continue to be taxed on their old salary.
- Tax credit for business that hire the unemployed. If a business hires an individual who has been unemployed for over six months, the business will be able to claim a tax credit of $4,000.
- Deductions for companies that invest in infrastructure. Companies that spend capital on equipment and plants will be able to deduct certain expenses from their taxes.
- Creation of an infrastructure bank. After a round of federal funding, a new facility will be able to offer loans to help fund local infrastructure improvement projects. Once the infrastructure bank is operational, it should pay for itself through interest collection on the loans.
- Transportation improvement projects. In addition to the infrastructure bank, the 2011 stimulus plan includes immediate funding for highways, mass ground transportation, and aviation.
- Modernize schools. Part of the stimulus package will include spending to repair, rebuild, or outfit 35,000 public schools.
- Fix vacant property. The federal government will dedicate funds for fixing up properties, residential or businesses, that have been foreclosed or abandoned.
- Extend unemployment benefits. Although employee benefits have already been extended to 99 weeks, the stimulus proposal would extend benefits even further. For unemployed individuals who choose to build their skills through job training, the plan would extend benefits as well as provide a stipend.
- Fund teachers and first responders. Obama would send $35 billion in federal money to local communities to help hire and keep public school teachers and emergency personnel.
- Offer more home refinances. The President has already proposed extending mortgage refinancing at today’s low rates to more homeowners.
How to pay for the 2011 stimulus
The total cost of the tax cuts in the 2011 stimulus package is $254 billion and the total cost of the spending measures is $194 billion. To pay for the tax cuts and spending, Obama’s plan for the most part is to raise taxes on individuals with incomes over $200,000 (or $250,000 for couples filing jointly). These are the adjusted gross income values, which are often much lower than gross revenue from a job or a business. For business owners, adjusted gross income is the resulting number after business expenses are deducted; for all individuals, adjusted gross income is the resulting income after most retirement contributions are removed from the number.
Much of the following is part of the Buffett Rule proposed by President Obama on September 19, 2011.
- Cap itemized deductions at a rate of 28%, not affecting anyone other than those in the top two income tax brackets. For every $100 in deductions, the most any America would be able to receive back is $28. Those who use major charitable donations to reduce taxable income, for example, could see a significantly higher tax bill.
- Tax carried interest at ordinary income rates. Hedge fund managers and others in the financial industry have benefited from the long-term capital gains rate of 15%. When a compensation is paid out of investment returns, it can qualify as carried interest. The stimulus plan would combined carried interest with ordinary income and the total would be subject to the tax bracket calculation, with a rate as high as 39.6%.
- Repeal oil subsidies. The oil industry has benefited from help from the government at a time when the industry seemed to be successful regardless of the subsidies. Paying for the stimulus plan could be assisted by removing these subsidies and allowing the industry to flourish on its own.
Obama’s proposal for the 2011 stimulus package has little chance of being approved by the Congress in its current form. There will likely be competing priorities between Republicans and Democrats to be settled first, and competing bills between the House of Representatives and the Senate in need of a compromise. As the situation changes, this article will contain the latest details.
What do you think about the 2011 stimulus package in its current form? Will it help to push the economy in the right direction? Is it completely unnecessary?
Updated September 19, 2011 and originally published September 13, 2011. If you enjoyed this article receive daily emails. Follow @ConsumerismComm on Twitter and visit our Facebook page for more updates.