Parties look to payroll tax deal after collapse of deficit talks

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

The Obama administration has asked Congress to extend payroll tax cuts set to expire at the end of the year, and also to renew unemployment benefits. The tax-cut extension could cost the Treasury an estimated $112 billion, but if it lapses American workers will see an immediate tax increase on Jan. 1 that would cost a typical family $1,000 per year.

Democrats plan to propose paying for the extension with a surtax on millionaires, which Republicans oppose.

“By taxing people who provide jobs, you put off the day we have economic recovery and job creation in this country,” said Sen. John Kyl of Arizona, one of six Republican members on the super committee that 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 that there would be no deal on the payroll tax cut extension.

The assertion that the surtax would hurt small businesses is overstated, according to the nonpartisan fact-checking site 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 automatic budget cuts — split between military and nonmilitary spending — to go into effect by 2013 unless Congress comes up with a plan before then to reduce deficits.

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

The Simpson-Bowles Commission, as it was known, proposed cuts in spending, including on entitlement programs that Democrats traditionally have protected, but also called for boosting revenues by increasing taxes and closing loopholes. Republicans resisted the revenue recommendations.

But both parties are hesitant to let the payroll tax cuts 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” (video below). “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. Pat Toomey (R-Pa.) said he also 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.”