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Signaling his exasperation with a lack of congressional action in aiding the U.S. economy, President Obama Thursday night gave a strongly delivered speech that laid out his modest vision for the American Jobs Act, a $447 billion plan that he said would create employment without raising taxes.
At times sounding like he was back on the presidential campaign trail, Obama proposed a jobs act that would provide a tax break for companies who hire new workers and cut payroll taxes in half for every small business and working American.
The jobs act proposes to be fully paid for as part of Obama’s long-term deficit reduction plan. The President said that “in the coming days” he would release a detailed plan that showed how he could do that while achieving the additional reduction needed to meet the broader goal of stabilizing U.S. debt.
“The people of this country work hard to meet their responsibilities. The question tonight is whether we’ll meet ours. The question is whether, in the face of an ongoing national crisis, we can stop the political circus and actually do something to help the economy,” said Obama in his address to a joint session of Congress.
Obama repeatedly urged lawmakers to “pass this jobs bill,” noting that 50 House Republicans have already proposed the same payroll tax cuts. “Pass this jobs bill, and companies will get a $4,000 tax credit if they hire anyone who has spent more than six months looking for a job,” he said.
A Dig at Republicans
In a clear dig at conservative Republicans in Congress who have consistently refused to compromise on issues such as raising taxes or the debt ceiling, Obama derided lawmakers who might allow a $1,500 middle class tax cut to expire next year. “I know that some of you have sworn oaths to never raise any taxes on anyone for as long as you live,” he said. “Now is not the time to carve out an exception and raise middle-class taxes, which is why you should pass this bill right away.”
Immediately following Obama’s address, House Speaker John Boehner (R-Ohio) issued a surprisingly conciliatory statement suggesting that Republican leadership—if not freshmen Congress members from the Tea Party—are ready to compromise on a bill.
“The proposals the President outlined tonight merit consideration,” Boehner said. “American families and small businesses are hurting, and they are looking for the White House and Congress to seek common ground and work together to help get our economy back on track. Republicans have laid out a blueprint for economic growth and job creation—our Plan for America’s Job Creators—that focuses on one thing: removing government barriers to private-sector job growth.”
Markets Stumble on Friday
Markets on Friday were glum, reflecting worries about Europe’s debt woes as well as a lack of confidence that Obama’s jobs bill can turn the U.S. economy around. The Dow Jones industrial average and S&P 500 closed down more than 2.5%. The 10-year Treasury bond was yielding 1.93% and gold traded higher, up 0.14%, at $1,857 per ounce.
Even before Obama spoke, wealth managers were skeptical about whether his jobs act would benefit investors.
Barry Glassman, president of Glassman Wealth Services in McLean, Va., wrote in a comment to clients that they should consider a number of points in Obama’s speech, including how the President proposed to create jobs, whether his proposal would encourage companies to spend money and whether it was a long-term solution.
“If you were leading a major corporation, does the proposed solution either entice you to hire, or offer the confidence that you have some certainty with which to make long-term decisions?” Glassman wrote. “I hope that there are some great surprises announced Thursday, but unless what is said passes some or all of the above tests, we’ll find ourselves waiting until after the 2012 election to see any real action.”
Highlights of Obama’s American Jobs Act designed to help small businesses hire and grow include:
- Cutting the payroll tax in half for 98% of businesses. The President’s plan will cut in half the taxes paid by businesses on their first $5 million in payroll, targeting the benefit to the 98% of firms that have payroll below this threshold.
- A payroll tax “holiday” for added workers or increased wages. This would completely eliminate payroll taxes for firms that add new workers or give current workers a raise.
- Extending 100% expensing into 2012.
- Reforms and regulatory reductions to help entrepreneurs and small businesses access capital. “The Administration will work with the SEC to conduct a comprehensive review of securities regulations from the perspective of these small companies to reduce the regulatory burdens on small business capital formation in ways that are consistent with investor protection, including expanding “crowdfunding” opportunities and increasing mini-offerings,” according to the act.
Employment News Depresses American Consumers
To be sure, both Obama and the U.S. Congress have tremendous hurdles to jump before they can lay claim to having impressed America’s voters, consumers and job-creating businesses.
Federal Reserve Chairman Ben Bernanke in a speech before Obama’s on Thursday reviewed such seemingly intractable issues as the high level of unemployment, slow wage gains for people who remain employed, falling house prices and high debt burdens.
Despite these persistent problems, Bernanke fretted that many Americans who are in a position to spend money are simply not doing so because the nation’s mood, if not the economy itself, is in a depression that looks unlikely to lift soon. “Even taking into account the many financial pressures that they face, households seem exceptionally cautious,” Bernanke said.
A look at the nation’s jobs picture helps explain Americans’ lack of conviction.
On the same day as Obama’s speech, good news from the Labor Department showed that the number of unemployed people who filed for benefits fell slightly by 10,000 to 382,000, surprising analysts who had expected a drop of just 7,000. This kept the four-week moving average below 400,000, a level that suggests some economic expansion.
But on the previous Friday, the Labor Department reported that no new payroll jobs were created in August, and the unemployment rate held flat at 9.1%. Analysts had expected a jobs gain of 65,000. The August numbers compare to July’s jobs gain of 117,000 and unemployment rate of 9.1%—a rate that has stayed virtually unchanged since April.
Further, consumer sentiment polls keep showing that Americans are experiencing low-level but persistent anxiety about their prospects. Two Gallup polls in as many weeks show that U.S. job creation is on a downward trajectory and that three in 10 American workers worry they could lose their job, double the level seen in 2008.
For more about the U.S. economy, read PIMCO’s Gross: Fed Action ‘Destroyed’ Credit Creation; Obama Needs to Be Bold at AdvisorOne.com.