CQ TODAY ONLINE NEWS
Nov. 29, 2011 – 10:57 p.m.
Parties Differ in Approach to Payroll Tax Cut
By Ben Weyl and Sam Goldfarb, CQ Staff
The contours of the debate over preserving a year-old Social Security payroll tax cut are quickly coming into focus, with lawmakers from both sides of the aisle embracing an extension of the benefit even as they disagree over whether to broaden it and how to pay for it.
Senate Minority Leader
“There’s a lot of sentiment in our conference, clearly a majority sentiment, for continuing the payroll tax relief that we enacted a year ago in these tough times,” McConnell said.
Republicans are likely to object to Obama’s call to expand the tax cut to give a larger break to workers and to benefit employers for the first time. And McConnell signaled a likely fight over offsetting the cost of an extension, which might come to as much as $115 billion.
“We believe with this kind of deficit, we ought to pay for it,” McConnell said.
As early as Dec. 2, the Senate is expected to try to take up a bill (
Similar objections were raised against the surtax offset in Obama’s broad jobs package (
Senate Majority Leader
Obama likewise sees political potency in the issue and plans a visit to Scranton, Pa., on Wednesday to argue for extension and expansion of the tax cut.
Republican Counteroffer
GOP lawmakers may hope to blunt the Democrats’ attack by supporting an extension of the tax cut with a different offset. Republicans have argued that the proposed surtax would harm many small-business owners who pay taxes as individuals, not as corporations.
McConnell did not specify how he hoped to finance the tax cut extension, but said GOP leaders in the House and Senate would soon release a proposal that is “paid for in an acceptable way that does not adversely impact job creation.”
Republicans might try to offset the cost with spending reductions that had been discussed in recent months by the Joint Select Committee on Deficit Reduction.
Parties Differ in Approach to Payroll Tax Cut
One such idea, suggested Tuesday by Sen.
Obama administration officials have indicated that they may be willing to negotiate some alternative means of financing the extension. But those negotiations will presumably wait until after Republicans have formally blocked the Senate’s first attempt at extending the tax cut.
And House Minority Whip
Democrats, including Reid, have previously suggested extending the payroll tax cut without offsetting it with spending reductions or tax increases, a move that would increase the deficit. When enacted last December as part of a broader tax cut measure (PL 111-312), the payroll tax cut was allowed to add to the deficit.
Republicans almost certainly would balk at that idea this time. A Tuesday news release from the office of Speaker
Another major point of conflict will be Obama’s proposal that the tax cut be expanded to benefit employers and to allow workers to pay even less in Social Security taxes than they currently do.
McConnell on Tuesday threw cold water on the idea of an expanded benefit.
Under last December’s tax agreement, the employee-paid share of the Social Security tax was temporarily reduced to 4.2 percent from 6.2 percent. Democrats want to further reduce the worker share of the payroll tax to 3.1 percent in 2012. And they want 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.
McConnell said he expected Congress to “extend this payroll tax relief for individuals only.”
AMT, ‘Extenders’ and More
Beyond the payroll tax cut, Reid said, Congress has a raft of high-priority measures to complete, including extending expiring unemployment benefits, heading off Medicare payment cuts to doctors and renewing several “tax extenders,” expiring provisions that range from the research and development tax credit for companies to the deduction that some individuals may take for state and local sales taxes.
Separately, a “patch” that prevents the alternative minimum tax from reaching deeply into middle class households will expire at the end of this year. Lawmakers will want to prevent the AMT from kicking in for millions of taxpayers, but that issue is not quite as urgent as the payroll tax cut.
Both the AMT patch and the tax extenders can be renewed retroactively next year, removing pressure on Congress to act on them immediately.
Parties Differ in Approach to Payroll Tax Cut
It is possible that many of these tax breaks and benefit programs might be extended in one big legislative package, but that presents its own problems. In particular, a one-year extension of tax cuts that expire in 2012 would reduce revenue by more than $200 billion over 10 years.
Congress also has sometimes found it easier to add a great deal to the deficit rather than a small amount. A prime example is last December’s tax deal, which renewed for two years the tax cuts (PL 107-16, PL 108-27) enacted under President George W. Bush. That measure cut taxes by $858 billion and also extended jobless benefits — with none of the cost offset.
Thune said he would be “surprised if there was much sentiment in support of a big package,” given deficit concerns. And McConnell said whatever is passed would bear the fingerprints of all involved.
“We’re going to be discussing between the House and Senate ways to deal with both continuation of the payroll tax reduction and unemployment insurance extension before the end of the year,” McConnell said.
“In the end, it will have to be worked out in a joint negotiation between a Democratic Senate and a Republican House.”
David Harrison contributed to this story.