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Nov. 28, 2011 – 10:43 p.m.

Democrats See Opening on Taxes

By Ben Weyl, CQ Staff

Senate Democrats have pledged to hold multiple votes on extending and expanding last year’s Social Security payroll tax cut — a signal both that they view this as an issue that will benefit them next Election Day and that they do not expect to win the fight easily.

Majority Leader Harry Reid on Monday said the Senate might take as many as three votes to extend the payroll tax cut, which expires at year’s end. The first vote may occur as early as Dec. 2, or earlier if Republicans agree.

“We are not going to let this lapse,” the Nevada Democrat told reporters on a conference call. “We are going to continue working on it.”

Senate Republicans are expected to block an initial attempt to pass the extension (S 1917) this week, largely because of strong opposition to financing the measure with a surtax on income in the upper bracket.

Democrats, however, are hoping to seize on the vote as an opportunity to highlight what they say are skewed priorities on the part of the GOP.

“If Republicans are going to vote against this, they have to explain why they have so energetically fought to protect tax cuts for millionaires and billionaires,” White House Press Secretary Jay Carney said Monday.

Sen. Charles E. Schumer of New York, who serves as the Senate Democrats’ messaging guru, told reporters Monday that his party has an opportunity to wrest the issue of taxes from Republicans, who have long dominated the discussion, particularly at election time.

“This has the potential to become a defining issue,” Schumer said.

In a memo last week to Schumer, Democratic pollster Geoff Garin wrote that a rising focus on income inequality would have a sizable impact on the 2012 election.

Extending and expanding the payroll tax cut, enacted as part of a tax law last December (PL 111-312), is a central piece of President Obama’s broader jobs proposal. Senate Democrats said passage of the extension would provide an extra $1,500 a year for average American workers and help stave off another recession.

“Not extending the payroll tax cut would be raising taxes on middle-income families, and that is something that we cannot afford to do as we continue to recover,” said Pennsylvania Democrat Bob Casey, who is up for re-election next year and will sponsor the measure to be offered in the Senate.

Surtax Objections

Republicans from both chambers on Monday threw cold water on the current plan to extend the tax cut because its cost would be financed with a 3.25 percent surtax on annual incomes over $1 million. GOP lawmakers assert that many taxpayers with incomes of that size are actually owners of smaller companies who pay taxes as individuals, not as corporations.

Democrats See Opening on Taxes

“Republicans have said that extending the payroll tax break is a potential area of common ground, but coupling it with a job-killing tax hike on small businesses makes no sense whatsoever,” said Michael Steel, an aide to House Speaker John A. Boehner, R-Ohio.

And Senate Minority Leader Mitch McConnell, R-Ky., complained that Democrats are “using the Senate floor as the stage for symbolic show-votes” that are unrelated to serious legislative efforts.

“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,” McConnell said.

Senate Republicans already have blocked the president’s broad $447 billion jobs bill (S 1549), as well as elements of it designed to employ teachers, emergency responders and construction workers, mostly because of opposition to similar surtaxes on high-income earners proposed to finance the jobs efforts.

Attempts to overcome procedural roadblocks to considering those measures did not win the necessary 60 votes in the Senate, and that outcome is likely to be repeated this week on the payroll tax extension.

Willingness to Negotiate

Under last December’s tax agreement, which extended tax cuts enacted under President George W. Bush through 2012, the employee-paid share of the Social Security tax has been temporarily reduced to 4.2 percent from 6.2 percent. The reduction expires at the end of December.

Democrats are proposing to further reduce the employee share of the payroll tax to 3.1 percent in 2012, and also to cut the employer share to 3.1 percent from 6.2 percent next year for the first $5 million of a company’s wage costs.

The legislation also would provide incentives to companies that expand their payrolls. It would eliminate the Social Security payroll tax paid by employers for the last quarter of 2011 and all of 2012 on the first $50 million of a company’s increased annual wage costs.

The Senate is expected to try to take up the payroll tax cut extension after it spends most of the week on the fiscal 2012 defense authorization bill (S 1867). A cloture vote on the defense measure is scheduled for Wednesday.

Democrats have declined to reveal how they hope to advance the payroll tax cut extension if, as expected, Senate Republicans block the first attempt. Reid said Monday that he did not think it “appropriate” to describe his plans yet.

In his daily briefing, Carney, too, would not answer questions about how the president might negotiate with Republicans on the payroll tax extension and whether Obama would sign an extension that does not include the offsetting surtax.

But senior administration officials have signaled a willingness to negotiate ways to pay for the tax cut. The surtax on millionaires “is not the line in the sand,” one administration official said.

Democrats See Opening on Taxes

Last week, another administration official expressed openness to allowing the payroll tax cut extension to raise the deficit. In such a move, the tax cut would not be offset by spending reductions or other tax increases.

Reid also noted that Republicans have often said that tax cuts need not be offset. And Congress chose not to pay for the payroll tax cut last year.

However, even if Democrats drop their demand for a tax increase on upper-income earners, GOP support for the payroll tax cut extension is not guaranteed.

Senate Minority Whip Jon Kyl, R-Ariz., may have been speaking for many colleagues when he said Nov. 27 on Fox News: “The payroll tax holiday has not stimulated job creation. We don’t think that is a good way to do it.”

Roll Call staff writer Steven T. Dennis contributed to this story.

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