Republican senators have devised a plan that will allow them to vote to extend a payroll tax break touted as a boon for the middle class without also having to deal with a Democratic proposal that would tie the payroll tax cut to a tax increase for millionaires.
Republican aides said the GOP will offer a plan to extend the payroll tax cut but pay for it through budget cuts rather than a tax increase on the wealthy. The Republican plan would extend a two-year pay freeze on most federal workers and lawmakers and reduce entitlement benefits and unemployment insurance for those earning more than $750,000.
Republicans would offer their plan alongside the Democratic proposal, which Senate Majority Leader Harry Reid, D-Nev., is expected to bring to the floor by Friday.
“We can maintain this tax relief without raising taxes on job creators,” Senate Minority Leader Mitch McConnell, R-Ky., said Wednesday.
Neither plan is expected to pass the Senate. Both are being offered primarily for political gain in an upcoming election in which voter concerns about the economy and joblessness are expected to dominate.
The Democratic plan would extend the current payroll tax cut that is set to expire this year. It also would further reduce the tax from 4.2 percent to 3.1 percent – half the amount workers paid prior to 2011. The lost revenue would be made up by a tax surcharge on those earning $1 million or more annually.
The Democratic plan would also expand the tax break to employers, which Sen. Charles Schumer, D-N.Y., said would offset the additional tax increase that could hit small businesses under the millionaire surcharge. Reid said the average family would see their tax savings grow from an average of about $1,000 now to $1,500 next year.
Republicans won’t back the Democratic plan because they said increasing taxes on millionaires would hurt a third of all job-creating small businesses. The GOP killed previous attempts to raise taxes on the rich when it blocked President Obama’s $3 trillion deficit-reduction package in September and his $447 billion jobs package before that.
“It’s about whether we should help those who are struggling in a bad economy by punishing the private sector businesses that the American people are counting on to help turn this economy around,” McConnell said.
The Republican plan is smaller in scope. It would extend the current payroll tax, but would not expand it or extend the break to employers.
The latest tax plan is a response to Senate Democrats who introduced their payroll tax proposal days earlier and charged that Republican opposition to it meant the GOP favored millionaires over the middle class.
“Republicans are increasing taxes on nearly every American family to protect people who make an average $37,500 a week, more than most Americans make in a year,” Reid argued on the Senate floor Wednesday.
Democrats have for weeks been using the millionaires tax to demonize the GOP, particularly in the Senate, where control of the chamber is up for grabs in the 2012 elections.
In the Republican-led House, Speaker John Boehner, R-Ohio, said the tax cut extension wouldn’t be allowed to add to the deficit.
“If in fact we can find common ground on these extensions, I think you can take to the bank the fact that they will be paid for,” Boehner said.
