Senate Democrats Propose Extending Payroll Tax Cut

Published: November 28, 2011 - New York Times

WASHINGTON — Senate Democrats introduced legislation Monday to extend and expand an expiring payroll tax cut, setting the stage for a showdown with Republicans who are almost certain to reject the Democrats’ proposal for paying for the cut.

The bill, which could be voted on as early as Friday, would reduce the Social Security payroll tax paid by employees and the self-employed by half, to 3.1. percent of wages from 6.2 percent, for 2012. Those taxes were reduced to 4.2 percent of wages this year under a law set to expire at the end of the year. Under the Senate measure, the average working family would have close to $1,500 a year more to spend, according to Senator Harry Reid of Nevada, the majority leader.

In a Monday conference call with reporters, Mr. Reid said that with millions of Americans struggling to make ends meet, “seems to me the most important thing we can do is to make sure they have money to keep their bills paid to the best of their ability.” Lower- and middle-income workers are the greatest beneficiaries of the tax cut.

The bill would also reduce the Social Security payroll tax paid by employers on the first $5 million of taxable payroll to 3.1 percent from 6.2 percent. This proposal was part of President Obama’s jobs program that previously failed in the Senate. In 2011, the tax cut resulted in $67.2 billion of lost revenue for Social Security, although that money is recouped, by law, through the government’s general fund.

Republicans — who have adamantly defended a renewal of the so-called Bush tax cuts, which also expire at the end of 2012 — have been lukewarm on extending the payroll tax holiday, arguing that it would not stimulate the economy. They are particularly displeased with the Senate proposal to pay for it: the bill calls for a 3.25 percent tax on gross income over $1 million for single filers and married couples filing jointly.

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

Senate Democrats are almost certain to make the extension of the cut a signature issue over the next few weeks. “We are not going to let this lapse,” Mr. Reid insisted.

At one point, the payroll tax cut was expected to be rolled into a deal proposed by the ill-fated deficit reduction panel, along with the extension of unemployment benefits for roughly 2.2 million Americans. Under current law, unemployed Americans receive up to 99 weeks of benefits; next year, without the extension, it would drop to a maximum of 26 weeks.

House Republicans are working with Senate Democrats on a deal that could put that issue to rest, perhaps by reducing the number of weeks of benefits by roughly three months. While extending the benefits is controversial among Republicans, it is more popular right now than the extension of the payroll tax cut.