The Looming Payroll-Tax Showdown

by Andrew Stiles

Lawmakers on both sides of the aisle are setting the stage for a political showdown over a temporary payroll-tax cut scheduled to expire at the end of the year. Senate Majority Leader Harry Reid (D., Nev.) said Monday that he plans to hold a vote this week on a measure to extend the payroll-tax provision, which was originally enacted last December as part of the deal to extend the Bush tax rates. Republicans, meanwhile, are saying ‘Not so fast.’

President Obama has made extending the tax cut a key element of his recent “jobs” agenda. It would seem, however, that Democrats are less concerned about actually creating jobs than they are with scoring cheap political points. For example, Reid has proposed “paying for” the tax cut extension, estimated to cost about $110 billion per year, with a 3.25 percent surtax on millionaires, which he knows Republicans won’t support. And that’s the point. “It seems they only care about keeping taxes low for the richest of the rich,” Reid said.

Senate Minority Leader Mitch McConnell (R., Ky.) was not impressed. “I think it’s safe to say that any attempt to pass another temporary stimulus funded by a permanent tax hike on the very people we’re counting on to create the private-sector jobs we need in this country is purely political, and not intended to do a thing to help the economy, since we already know it’s likely to fail,” he said on the Senate floor.

But GOP opposition to the Democratic proposal runs deeper that. Senate Minority Whip Jon Kyl (R., Ariz.) argued that extending the payroll tax cut was not an effective way to grow the economy, and could ultimately have negative consequences. “The payroll tax holiday has not stimulated job creation. We don’t think that’s a good way to do it,” he said on Fox News Sunday. “The problem here is payroll doesn’t go into general revenue, it supports Social Security, and you can’t keep extending the payroll tax holiday and have a secure Social Security.”

In fact, top Republicans have been making a similar case since August, when the outline of the president’s jobs plan first became known:

“They’ve tried this once, and it hasn’t seemed to be working,” said Rep. Jeb Hensarling (R., Texas), a newly appointed member to the so-called “supercommittee” on deficit reduction. Sen. Lamar Alexander (R., Tenn.), a member of the GOP leadership team, concurred. “We don’t need short-term gestures, we need long-term strategies that build into our system simpler taxes, lower taxes, fewer mandates, lower costs, more certainty,” he said. “If short-term government programs work, we wouldn’t have 9 percent unemployment today, because the government has tried it. So we’ve proved that doesn’t work, unfortunately.”

Some Republicans, on the other hand, such as Sens. John McCain (R., Ariz.) and Pat Toomey (R., Pa.), have expressed an openness to extending the payroll-tax cut, so long as it wasn’t paired with a tax increase. “I think that some package of [a payroll tax cut extension] with other features might very well pass,” Toomey predicted on ABC’s This Week. House Speaker John Boehner (R., Ohio) had previously identified the payroll tax measure as a potential area for compromise.

Apart from the from the millionaires’ surtax, it remains to be seen what Reid’s proposal will actually look like. Last December’s deal lowered the payroll tax rate from 6.2 percent to 4.2 percent. President Obama has proposed not just extending the current rate, but lowering it to 3.1 percent.

Whatever the case, Democrats may be willing to “compromise” as well — by simply not paying for the extension. President Obama has touted his $450 billion jobs plan by insisting that it “will be paid for.” But as a senior White House official recently told Roll Call, that message has shifted a bit — to “can be” paid for. “The critical thing is to extend the tax cut,” said another official. “The issue was never ‘Do you pay for it right now?’”

President Obama, for his part, is scheduled to campaign speak in Scranton, Pa., on Wednesday to urge Republicans Congress to support the payroll-tax-cut extension.

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