Senate Democrats to press GOP on payroll tax break

The Senate is expected to vote this week on President Obama’s proposals to expand a payroll tax holiday for workers and provide a tax break for companies that hire new employees– the first of several attempts Democrats promise to make to pass the proposals over GOP opposition.

The tax breaks are part of Obama’s $447-billion jobs plan, and failure to continue the payroll tax holiday after it expires next month would slap workers with an average $1,000 tax hike on Jan. 1. The proposals would be paid for with a surtax on millionaires.

Republicans have resisted most elements of Obama’s jobs package, and showed little interest in these. Congressional Republicans said Monday that taxing those with incomes beyond $1 million to pay for the proposals would hurt small-business owners.

“It’s hard to imagine Republicans being more out of step with Americans than they are now,” Senate Majority Leader Harry Reid (D-Nev.) said Monday on a conference call.


Reid cited economists who have said failure to extend the payroll tax break could slice nearly a percentage point off the nation’s gross domestic product in 2012 and “could tank our economy.”

Republicans had earlier shown interest in extending the payroll tax holiday, which took effect in January and reduces workers’ 6.2% Social Security payroll tax. Anti-tax activist Grover Norquist has said he is not opposed to extending the tax break. But Republican leaders have increasingly cooled to the idea when it is paid for with a tax on millionaires.

“Republicans have said that extending the payroll tax break is a potential area of common ground, but coupling it with a job-killing tax hike on small businesses makes no sense whatsoever,” said Michael Steel, a spokesman for House Speaker John A. Boehner (R-Ohio.).

The payroll tax, paid by both employees and employers, now provides funds for Social Security. The federal government has been required to offset the lost Social Security revenue, a practice that would be continued if the tax break is approved.

Under the legislation, the payroll tax reduction would not only be extended for another year, through 2012, but enhanced as Obama proposed in his jobs package this fall. Some 160 million workers would see their payroll taxes cut in half, increasing the average annual tax break for workers to $1,500.

The legislation would also give employers a new tax break, eliminating completely for 2012 their share of the payroll tax, 6.2%, for any new workers hired. A similar tax break had been in place temporarily in 2009.

The proposals would be paid for with a 3.25% surtax on incomes beyond $1 million. The millionaires’ tax would begin in 2013.

Several economists have said that putting money into the hands of people who will spend it is one of the best ways to stave off a double-dip recession. But Republicans doubt those assessments, and prefer an approach to job creation that relies on cutting government regulation and reducing corporate and individual taxes.