Lawmakers hedge on economic compromise

Following the failure of the congressional “super committee” to agree on a 10-year plan to reduce federal deficits, lawmakers from both parties Sunday signaled limited willingness to compromise on more immediate economic issues before the year ends.

The Obama administration has asked Congress to extend the payroll tax cut set to expire at the end of the year and to renew unemployment benefits lasting up to 99 weeks — well beyond the standard 26-week program. Jobless benefits for about 2 million Americans are set to expire shortly after the new year.

Extending the payroll tax cut would cost the Treasury an estimated $112 billion, but if it lapsed, American workers would see an immediate tax increase after Jan. 1 that would cost a typical family $1,000 a year.

Democrats plan to propose paying for the extension with a surtax on those earning more than $1 million, which Republicans oppose. Republicans maintain that the government needs to focus on cuts in spending to get the nation’s finances in order.

“By taxing people who provide jobs, you put off the day we have economic recovery and job creation in this country,” said Sen. Jon Kyl of Arizona, one of six Republicans on the super committee, which called it quits last week. “It would hit those people, the small businesses who we all acknowledge are the ones who create the jobs.”

But Kyl, speaking on “Fox News Sunday,” stopped short of saying there would be no deal on the payroll tax cut.

The assertion that the surtax would hurt small businesses is overstated, said the nonpartisan fact-checking website PolitiFact, which cited several reports showing that only a tiny percentage of such business owners make more than $1 million annually.

Economists warn that a failure to extend the payroll tax cut and unemployment benefits could cut the economy’s weak growth almost in half next year.

The super committee’s failure triggered $1.2 trillion in automatic budget cuts — split between military and nonmilitary spending — to go into effect in 2013 unless Congress comes up with an alternative before then.

Some lawmakers indicated Sunday that they might be open to reviving previous proposals by the president’s National Commission on Fiscal Responsibility and Reform, which was co-chaired by former White House Chief of Staff Erskine Bowles, a Democrat, and former Sen. Alan Simpson of Wyoming, a Republican.

The commission proposed cuts in spending, including on entitlement programs that Democrats traditionally have protected. But it also called for boosting revenue by increasing taxes and closing loopholes. Republicans resisted the revenue recommendations.

But both parties are hesitant to let the payroll tax cut expire for fear of how it would affect consumer spending and confidence. At least two senators said Sunday that lawmakers might seize the moment to come up with a larger plan to preserve the tax cuts and reduce deficits.

“I believe this is a contrarian view, but we have a good chance of actually getting the big package, big deficit reduction, in 2012,” said Sen. Charles E. Schumer (D-N.Y.) on NBC’s “Meet the Press.” “The pressure on both parties to come together in the middle … is going to be stronger and stronger. Second, the Republican primaries will end; right now the Republican primary pushes the candidates and then their Senate and congressional supporters to the right.”

He added: “But once you get a nominee, they have to move to the middle.”

On ABC’s “This Week with Christiane Amanpour,” Sen. Patrick J. Toomey (R-Pa.) said he was “cautiously optimistic” that a debt deal could be worked out next year.

“I spoke with a number of Democratic senators who were not serving on the super committee, who thought that the plan that we put forward was very constructive, was reasonable,” he said. “So I think there’s a chance to work with some of the more moderate members of the Democratic caucus who want to make progress, who realize how important this is.”

The GOP had proposed $250 billion in new tax revenue over 10 years, largely by limiting itemized deductions, as part of a $1.2-trillion deficit reduction plan. That was rejected, in part, because it also would have lowered tax rates for wealthy Americans and others.

The Republicans’ last offer would have cut $640 billion from deficits over a decade — far below the committee’s goal. That plan included $3 billion in new tax revenue that would come from closing the loophole that allows a tax deduction for corporate jets. Democrats derided the revenue proposal as meager.

neela.banerjee@latimes.com

Lisa Mascaro in the Washington bureau contributed to this report.