Tax incentives could benefit employers

Some of the tax related provisions of President Barack Obama’s proposed American Jobs Act of 2011 could encourage employers to stimulate the economy.
The jobs bill, which was introduced in the House last week, would provide tax incentives to companies for hiring more employees, raising wages and hiring certain groups of workers, like veterans.
“The biggest impact to local businesses would be the changes related to the social security tax or the FICA tax,” said Timothy Steffen, senior vice president and director of financial planning, private wealth management at Robert W. Baird.
A provision of the AJA lowers the 2012 Social Security payroll tax for both employers and employees to 3.1 percent—a significant reduction. Currently, employers pay 6.2 percent and employees pay 4.2 percent, Steffen said.
“(Employers) would immediately feel that tax savings, but the downside of that is it’s a one year thing,” he said.
In addition, employers who increase employee salaries from fourth quarter 2011 to all of 2012 would get a tax break of 6.2 percent on the additional wages. The incentive is meant to offset the associated Social Security tax paid by employers.
“If you’re not going to go hire new employees because of the cost associated with bringing new people on … maybe instead of doing that, you’re willing to pay some of your existing employees a little bit more,” Steffen said.
A tax law passed in 2010 that allows employers to immediately expense all of their asset purchases this year would be extended through 2012 under the AJA. The expense deduction is meant to encourage employers to invest in new equipment, Steffen said.
In addition, the maximum tax credit for hiring a disabled military veteran would increase from $4,800 to $9,600. Two other new credits would further encourage hiring veterans.
These new tax incentives would be funded by a permanent limit on the deduction benefits for those in higher tax brackets, Steffen said. A 28 percent cap would be imposed on itemized deductions, the value of employer provided health insurance and other deductions.
The AJA proposal depends on the willingness of employers to start spending money, which could be easier said than done in the current economic environment, Steffen said.
“Those are all credits that will apply to employers and provide some benefit, but they will all require employers to do something that they aren’t doing now,” he said. “Is this enough to spur employers to start doing something? Perhaps, perhaps not.”
Another pitfall—most of the incentives in the AJA will last for one year, but they will be funded with permanent tax increases. That could be a tough sell, Steffen said.