September 13, 2011

The following is a summary of the major provisions of the “American Jobs Act,” released by the White House on Monday, September 12, 2011.  According to the White House, the bill would increase deficits by $447 billion over ten years to pay for temporary stimulus spending, new job training programs, unemployment insurance, and temporary tax reductions.  To offset the cost of the legislation, the bill includes an estimated $467 billion in permanent tax increases, according to the White House. 

 

Title I—Tax Relief for Workers and Businesses

Subtitle A—Payroll Tax Relief

• Temporary Payroll Tax Cut for Employers, Employees, and the Self-Employed:   The bill would expand a current payroll tax cut for employees and establish a new payroll tax cut for employers in calendar year 2012.  Payroll taxes paid by employees would be reduced from 4.2 percent to 3.1 percent.  Payroll taxes for employers would be reduced from 6.2 percent to 3.1 percent on their first $5 million in payroll.  The bill would transfer funds from general revenues to the Social Security Trust Fund to make up for the revenue shortfall.   According to the White House, the reduction in payroll taxes for employers (in combination with the payroll tax holiday for new wages described below) would increase deficits by $65 billion over ten years.   The expansion of the payroll tax reduction for employees would increase deficits by $175 billion.

• Temporary Tax Credit for Increased Payroll:  For the last quarter of 2011 and for calendar year 2012, the proposal would provide a payroll tax credit that fully offsets the employer social security tax that otherwise would apply to increases in wages from the corresponding period of the prior year.   The bill would transfer funds from general revenues to the Social Security Trust Fund to make up for the revenue shortfall.

Subtitle B—Other Relief for Businesses

• 100 Percent Bonus Depreciation:   The bill would extend the ability of businesses to deduct 100 percent of the cost of qualified property through the end of 2012.  According to the White House, this provision would increase the deficit by $5 billion.

• Surety Bonds:  The bill would temporarily increase the size of contract surety bonds that the Small Business Administration (SBA) can guarantee from $2 million to $5 million, through FY 2012.  The bill provides $3 million in mandatory funding for the Surety Bond Guarantees Revolving Fund to cover the estimated cost of this section.
  
  
• Delay in Application of Withholding on Government Contractors:  The bill would delay the effective date of the requirement that governmental entities withhold 3 percent from payments to persons providing certain property or services through 2013.

 

Title II—Putting Workers Back on the Job While Rebuilding and Modernizing America

Subtitle A—Veterans Hiring Preferences

• Wounded Warriors Work Opportunity Tax Credits:   The bill would provided employers that hire veterans who have been unemployed for at least 6 months and have a service-connected disability with a tax credit of up to $9,600.  The bill would also create two new hiring credits for all other veterans.  The first is a credit of $2,400 for employers that hire veterans who have been unemployed for at least 4 weeks.  The second is credit of $5,600 for veterans who have been unemployed for at least 6 months.

Subtitle B—Teacher Stabilization

• The bill would appropriate $30 billion to provide grants to states, based on population, to prevent teacher layoffs.  The bill would authorize states to reserve 10 percent of their grants for state-funded preschool programs and to reserve 2 percent for administrative costs.  The bill would require participating states to maintain support for early childhood, elementary, and secondary education and public institutions of higher education at the same level of support as the previous fiscal year or higher, effectively prohibiting reductions in state education spending.   According to the White House, teacher rehiring and first responder programs (described below) will total $35 billion in spending over ten years.

Subtitle C—First Responder Stabilization

• The bill would provide $5 billion for competitive grants to states to prevent layoffs and pay for the hiring of law enforcement officers and other first responders.  According to the White House, teacher rehiring and first responder programs will total $35 billion in spending over ten years.

Subtitle D—School Modernization

• Elementary and Secondary Schools:  The bill would provide $25 billion in grants to states, based on population, to provide assistance for the modernization, renovation, and repair of elementary and secondary school buildings in public school districts across America.  The bill would allow certain private, nonprofit elementary or secondary schools to be eligible to receive program services for limited purposes, including meeting requirements of the Americans with Disabilities Act.  According to the White House, school modernization programs will total $30 billion in spending over ten years.

• Community College Modernization:   The bill would provide $5 billion for the Secretary of Education to award grants to states to modernize, renovate, or repair existing facilities at community colleges.   According to the White House, school modernization programs will total $30 billion in spending over ten years.

Subtitle E—Immediate Transportation Infrastructure Investments

• The bill would provide $2 billion for airport development grants.
  
  
• The bill would provide $1 billion to conduct research and development and demonstrations and to acquire, establish, and improve FAA air navigation facilities.
  
  
• The bill would provide $27 billion for highway restoration, repair, and construction projects, as well as passenger and freight rail transportation projects, distributed via formulas that were also utilized under the Democrats’ “stimulus.”
  
  
• The bill would provide $4 billion for existing intercity passenger rail networks and develop new high speed rail corridors.

• The bill would provide $2 billion to Amtrak for the repair, rehabilitation, and upgrade of Amtrak’s assets and infrastructure.

• The bill would provide $3 billion for transit capital projects, particularly for the purchase of new buses and for the repair and rehabilitation of existing rail and bus systems.

• The bill would provide $6 billion for capital projects to modernize existing fixed guideway systems and to replace and rehabilitate buses and bus facilities.

• The bill would provide $5 billion to award grants on a competitive basis for projects across all surface transportation modes that “will have a significant impact on the Nation, a metropolitan area or a region.”  This provision would require the Secretary of Transportation to publish criteria on which to base competition for the grants within 90 days of enactment, with priority for distribution of funds given to projects expected to be completed within three years of the date of enactment of the Act. 

• According to the White House, transportation and infrastructure programs will total $50 billion in spending over ten years.

Subtitle F—Building and Upgrading Infrastructure for Long-Term Development

• Establishment of the American Infrastructure Financing Authority (AIFA):  The bill would establish the American Infrastructure Financing Authority (AIFA)—also referred to as the “infrastructure bank”—as a wholly-owned government corporation that will provide direct loans and loan guarantees to facilitate investment in “economically-viable” infrastructure projects of regional or national significance.  AIFA’s Board of Directors would consist of seven voting members, each of whom will have an equal vote and all of whom will be appointed by the President with the advice and consent of the Senate. The bill would also establish a non-voting CEO of the AIFA, responsible for appointing senior management (subject to Board approval), hiring and terminating all other AIFA personnel, overseeing AIFA’s involvement in the funded projects, and assessing and recommending in the first instance (subject to ultimate approval or disapproval by the Board) the compensation of all AIFA personnel. 

• Terms and Limitations on Direct Loans and Loan Guarantees:  The bill would state that financial assistance shall not be provided for any project whose purpose is private and for which no public benefit is created.  An eligible project has a cost that is reasonably anticipated to equal or exceed $100 million, with the exception of rural projects.   The maximum amount of new direct loans and loan guarantees in AIFA’s first two fiscal years is limited to $10 billion each year. This increases to $20 billion per year after the second year of operations and through the ninth year, and increases to $50 billion per year after the ninth year of operations.  The CEO of AIFA will establish a repayment schedule for each direct loan, with the repayment commencing no later than five years after the date of substantial completion.

• Funding of AIFA:  This bill would authorize and appropriate $10 billion, which is to remain available until expended, to provide loan guarantees.  Portions of these funds would be set aside in the early years for administrative costs.  According to the White House, the infrastructure bank will cost $10 billion over ten years.

Subtitle G—Project Rebuild

• The bill would provide $15 billion for “Project Rebuild,” a new program to make federal grants to rehabilitate and refurbish vacant and foreclosed homes and businesses.  Under the bill, two-thirds of the funds would be allocated by formula to states and local governments and one-third would be allocated competitively to all types of eligible entities.  The bill would require that all funding must be obligated by HUD within 150 days, and that eligible entities would have a goal of expending 100 percent of funds within 3 years of receipt by the grantee.  The bill would also provide a minimum of $20 million for each state.  According to the White House, rehabilitating vacant property will total $15 billion in spending over ten years.

Subtitle H—National Wireless Initiative

• Auctions of Spectrum and Spectrum Management:    The bill would reallocate the D Block spectrum for a national broadband public safety network (costing $3 billion) and provide funding to support the deployment of this network and technological development to tailor the network to meet public safety requirements.  In addition, the bill would authorize the FCC to hold incentive auctions, where non-government holders of spectrum will be reimbursed for its value from a portion of auction proceeds in return for voluntarily relinquishing their spectrum rights.  According to the White House, the proposal has a gross cost of $10 billion, but a net deficit reducing impact of $18 billion because of spectrum auction proceeds.

 

Title III—Assistance for the Unemployed and Pathways Back to Work

Subtitle A—Supporting Unemployed Workers

• Extension of Emergency Unemployment Compensation Program:   The bill would provide for the extension of emergency unemployment compensation benefits.   The bill would extend the emergency unemployment compensation (EUC) program for individuals to enter the program (upon exhaustion of regular unemployment compensation (UC) payments) by one year to January 3, 2013. It also would extend the transition period so individuals would be permitted to continue to receive amounts remaining in their EUC accounts until June 8, 2013.  The bill would extend 100 percent Federal funding of most extended benefits (EB) by one year to January 4, 2013. It also would extend the transition period by one year so 100 percent federal funding of EB would continue until June 11, 2013, for individuals who started receiving EB before January 4, 2013.  According to the White House, the extension of Unemployment Benefits would cost $49 billion over ten years.
  
  
• Reemployment NOW program:  The bill would appropriate $4 billion for the establishment of the Reemployment NOW program, which would facilitate the reemployment of individuals receiving emergency unemployment compensation.  Under the program (which is based on the Georgia Works! Program and other state programs), eligible individuals would have the option to engage in short-term work experiences with an eligible employer while receiving unemployment benefits.  During participation in the bridge to work program, an individual receiving EUC would 1) continue to receive EUC as wages for work performed for the participating employer;  2) receive any augmented wages, if applicable; and 3) could be paid compensation by a participating employer or by a state that is in addition to EUC and augmented wages paid.

Subtitle B—Long-Term Unemployed Hiring Preferences

• The bill would make employers eligible for a maximum tax credit of $4,000 if they hire individuals who have been unemployed for at least 6 months. This credit is also made available to tax-exempt entities and public universities. Finally, this section authorizes the Secretary of the Treasury to provide alternative methods for certifying an individual’s unemployed status.   According to the White House, the proposal would increase the deficit by $8 billion over ten years.

Subtitle C—Pathways Back to Work

• The bill would establish a $5 billion fund to support subsidized employment opportunities, summer and year-round youth employment, and work-based training and education programs for unemployed, low-income adults and low-income youth, known as “The Pathways Back to Work Fund.” According to the White House, the proposal would increase spending by $5 billion over ten years.

Title IV—Offsets (Obama Pay-For)

Subtitle A—28 Percent Limitation on Certain Deductions and Exclusions

• The bill would limit the value of all itemized deductions and certain other tax expenditures for certain taxpayers by limiting the tax value of otherwise allowable deductions and exclusions to 28 percent. Taxpayers with adjusted gross income over $250,000 for married couples filing jointly (or $200,000 for single taxpayers) would be subject to this limitation. The limitation would affect itemized deductions and certain other tax expenditures that would otherwise reduce taxable income in top two tax brackets.  This section would be effective for taxable years beginning on or after January 1, 2013, and would be a permanent tax increase used to offset temporary spending and tax cuts.  According to reports, this provision would increase taxes by $405 billion over ten years.  

Subtitle B—Tax Carried Interest in Investment Partnerships as Ordinary Income

• The bill would tax as ordinary income, and make subject to self-employment tax, a service partner’s share of the income of an investment partnership attributable to a carried interest because such income is derived from the performance of services.  Under current law, service partners are allowed to receive capital gains treatment on labor income without limit.  Essentially, this provision would treat carried interest earned by investment fund managers as ordinary income rather than taxing it at capital gains rates, which would increase taxes by $18 billion.

Subtitle C—Close Loophole for Corporate Jet Depreciation

• The bill would require corporate jets to be depreciated over the same number of years as other aircraft.   Current law contains a provision that allows corporate jets to be depreciated faster than passenger airliners.  This section would be effective for taxable years beginning after December 31, 2012, and would increase taxes by $3 billion over ten years.

Subtitle D—Repeal Oil Subsidies

• The bill would repeal a total of eight tax deductions specifically designed for oil and gas production.  According to reports, this provision would increase taxes on energy production and distribution by $41 billion over ten years.

Subtitle F—Increased Target and Trigger for Joint Select Committee on Deficit Reduction

• The bill would enact offsets to pay for the provision in the bill that increase the deficit, either through new spending or revenue reductions.  Under the bill, if the Joint Select Committee on Deficit Reduction achieves additional savings in the amount of the cost of these deficit-creating provisions, the offsets contained in the bill would not take effect. The bill would amend the Budget Control Act of 2011 to increase the $1.5 trillion deficit reduction target of the Joint Committee by the cost of this bill, or $447 billion according to White House estimates.  The bill would further amend the Budget Control Act to specify that if the Joint Committee exceeds the $1.2 trillion in deficit reduction necessary to avoid sequestration by the cost of the provisions in this bill, then the offsets in Title IV of this bill will not take effect.  This increased amount would be revised based on the final score of the bill.  However, the bill would not affect the existing requirement in the Budget Control Act for sequestration if the Joint Committee does not hit its minimum deficit reduction target of $1.2 trillion.

Title IV—Offsets (Reid Pay-For)

Surtax on Taxpayers Earning $1 Million or More

• Senate Majority Leader Harry Reid has announced that he would like to pay for President Obama’s new stimulus plan with a permanent 5.6% surtax on Americans with an adjusted gross income above $1 million beginning in 2013. According to Senator Reid, the proposed surtax would increase taxes by $450 billion over ten years.  According to the Department of Treasury, 41% of all business income reported on individual returns was produced by people earning more than $1 million and would be hit by the Reid surtax.   According to the IRS, Americans earning more than $1 million already pay for more than 20 percent of all income tax in the U.S. despite producing only 10 percent of all income.   Including increased tax rates and decreased deductions for earners in the top two tax brackets called for by the president and other Democrats, as well as surtaxes included in the health care takeover and state taxes, those making over $1 million would pay an effective income tax rate of more than 50 percent under the Democrats’ proposals.