WASHINGTON (AP) - President Barack Obama is doubling down on a payroll tax cut for workers and small businesses, hoping it will do more to revive the job market than a smaller version has done this year.
Obama wants to extend and expand a payroll tax cut that is scheduled to expire at the end of the year. The current tax cut, which applies only to workers, reduces Social Security taxes from 6.2 percent to 4.2 percent. Employers still pay the 6.2 percent rate, which is applied to wages up to $106,800.
Appealing to Republicans in Congress who usually favor tax cuts, Obama proposed Thursday to extend the tax cut for a year and make it bigger - reducing the Social Security taxes paid by workers to 3.1 percent. Obama's plan would also cut in half the Social Security taxes paid by businesses on the first $5 million of their payroll. About 98 percent of firms have payrolls below the $5 million threshold, according to the White House.
Companies that increase their payroll - through new hires or pay raises - would also get a break on their payroll taxes.
The tax cuts are part of a package of nearly $450 billion in tax reductions and new federal spending that Obama unveiled Thursday night in an effort to revive the weak economy as he embarks on a tough re-election fight. Tax cuts account for more than $250 billion of the package.
Obama told a joint session of Congress Thursday that his plan "will provide a tax break for companies who hire new workers, and it will cut payroll taxes in half for every working American and every small business. It will provide a jolt to an economy that has stalled, and give companies confidence that if they invest and if they hire, there will be customers for their products and services."
The goal is to increase take-home pay for workers in the hope they will spend the money, creating more demand for consumer goods and services. Workers making $50,000 a year would see their take-home pay boosted by $1,550; those making $100,000 would get $3,100.