Washington – President Barack Obama jets to Scranton, Pa., on Wednesday to ramp up pressure on Congress to extend and perhaps expand a payroll tax cut for another year — a move that Senate Republicans suggested Tuesday could happen, at least the extension.
Last year, Obama and Congress agreed to cut the payroll tax paid by workers for Social Security by 2 percentage points, to 4.2 percent. Obama now wants to extend that another year — and even expand it so that workers would pay only 3.1 percent tax on their wages up to $106,800. If Congress doesn't act however, the 2-point tax cut ends Dec. 31, effectively raising taxes on workers.
The tax cut extension is a major part of Obama's $447 billion job creation package, and White House officials said he plans to champion it aggressively in the few weeks that Congress has remaining until it recesses for Christmas.
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“If Congress refuses to act — then middle-class families are going to get hit with a tax increase at the worst possible time,” Obama said last week in Manchester, N.H. “The question they'll have to answer when they get back from Thanksgiving is this: Are they really willing to break their oath to never raise taxes, and raise taxes on the middle class just to play politics?”
The White House has put a tax calculator on its whitehouse.gov webpage, allowing visitors to run the calculations themselves and warning that “if Congress doesn't act, middle class taxes will go up.”
Alan Krueger, chairman of the President's Council of Economic Advisers, told reporters Tuesday that the tax break would come at a time when “the economy can use more medicine to strengthen and sustain the recovery.”
He argued that if the tax cut is not extended, a family making $50,000 would face a $1,000 tax increase starting in January, and that economists from “across the spectrum” have suggested that allowing the tax cut to expire “could pose a severe drag for growth going forward.”
Though most of Obama's jobs package has been panned by congressional Republicans, there were signs Tuesday that Congress eventually may approve continuing the 2 percentage point payroll tax cut, though probably not expanding it to 3.1 percent.
“In all likelihood we will agree to continue the current payroll tax relief for another year,” Senate Republican leader Mitch McConnell of Kentucky said. But he cautioned, “We believe that it should be paid for.”
That stipulation is sparking all sorts of political maneuvering. The Senate is likely to vote on the tax cut later this week, and both Democratic and Republican alternatives are likely to fail on party-line votes.
How to pay for the cut rather than have it swell the $909 billion deficit that the White House projects for fiscal 2012 is what's holding things up.
Senate Democrats want to fund the extension with a 3.25 percent surtax on millionaires, a proposal that Republicans have rejected over and over again — and plan to defeat again.
The millionaire tax is “a permanent tax increase on many small businesses,” McConnell said.
A vote could come as soon as Thursday.
In the House of Representatives, Republicans, who control the chamber, are also in no mood for the millionaires' surtax. “It simply does not make sense to extend the payroll tax cut by raising taxes on American job creators,” said House Speaker John Boehner, R-Ohio.
“We told the president in September that we stand ready to have an honest and fruitful discussion with him regarding the payroll tax extension, and that invitation stands,” he added.
Republicans plan to devise an alternative way of paying for the payroll tax increase, but they have not yet announced their plans. The GOP, though, has all but ruled out Obama's proposal to reduce the rates to 3.1 percent.
“I'd be surprised if there was sentiment for that on our side,” said Senate Republican Policy Committee Chairman John Thune, R-S.D.
Both sides see political gain from their current positions.
“It's hard to imagine Republicans being more out of step with the American people than they are right now,” said Senate Majority Leader Harry Reid, D-Nev. “Americans want us to cut taxes for the middle class and ask millionaires to pay their fair share.”
Reid, however, would not rule out increasing the federal deficit rather than taxing millionaires to pay for the tax cut — though Republicans are unlikely to embrace that approach, either.
Though Obama has insisted that his jobs package would be fully paid for, White House spokesman Jay Carney refused to say Tuesday whether Obama would sign a tax cut extension that isn't paid for.
“We don't know what the end game is yet,” Carney said. “And there is no value in this process or ultimately for the American people who want and deserve this tax cut to negotiate an end game here before we've even had a vote.”
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