Obama prods Congress on payroll tax as Democrats unveil new plan

Senate Democrats are offering a new proposal to extend the payroll tax holiday, a strategy designed to reach out to Republicans who have shown little interest in continuing the $1,000 tax break for working Americans that expires at the end of the year.

President Obama pressed the case for the tax break Monday after Republicans revolted against the plan last week. Congress has just a few weeks left to strike a compromise.

“As soon as this year ends, so does that tax cut. There aren’t many folks, neither in the middle class or those trying to get into the middle class, who can afford to give up $1,000 right now. That’s why Congress must act,” Obama said in remarks from the White House briefing room.

Republicans are unlikely to embrace this latest proposal, as they say tax breaks for workers do little to stimulate the economy. They also say the tax breaks should be paid for with cuts elsewhere in the budget, rather than relying on a surtax on millionaires as Democrats have proposed in the past.

The new proposal from Senate Majority Leader Harry Reid (D-Nev.) hews to GOP concerns by offsetting the cost of the tax break with a combination of GOP-backed spending cuts as well as the surtax on those earning beyond $1 million a year.

The new plan drops a proposed tax break for companies that hire unemployed workers, but in keeping with Obama’s jobs package, the Democratic bill would enhance the payroll tax holiday to $1,500 for 2012 – a prospect that will certainly limit GOP support.

Failure to approve the tax break would result in a tax hike on American workers on Jan. 1. As press secretary Jay Carney briefed reporters in the White House after Obama’s remarks, a monitor showed a countdown clock ticking down the seconds until taxes would go up on the middle class “if Congress doesn’t act.”

House Speaker John A. Boehner (R-Ohio) is also preparing an alternative proposal after Senate Republicans revolted over a GOP plan last week and Boehner’s rank and file have been cool to continuing the tax break.

Republicans are also concerned the tax break would reduce the revenue stream to Social Security, because the tax trims the amount workers pay into the trust fund. But the lost revenue would be replenished with the offsets used to pay for the tax break.

Boehner hopes to build support by tacking on a provision that would advance development of the Keystone XL pipeline, a controversial oil project that Republicans say will create jobs by critics argue poses environmental problems. Obama has shelved a decision on the pipeline until after the 2012 election.

A coalition of environmental groups, including the Sierra Club and Natural Resources Defense Council, wrote to congressional leaders urging them to avoid linking the issues.

“The environmental issues that might be folded into this package are significant in their own right, and should not be slipped into an unrelated bill, limiting scrutiny and debate, in an effort to extort votes to roll back environmental and health protections,” the groups wrote.

Economists say the tax break boosts the economy by putting money in the hands of those likely to spend it, and failure to continue it could cut economic growth in 2012.