Sen Reid: Democrats to Begin Effort to Renew Expiring Payroll Tax Cut

November 28, 2011

Sen Reid: Democrats to Begin Effort to Renew Expiring Payroll Tax Cut

Senate Majority Leader Harry Reid (D., Nev.) on Monday said that Democrats will this week introduce a measure to renew and expand an expiring payroll tax cut--kicking off a year-end tax battle between Republicans and Democrats.

"This week we'll introduce legislation that would give the economy a boost by putting money back in pockets of middle class workers and small businesses by extending and expanding a popular payroll tax cut," Reid said on the Senate floor. Aides expect it could come up for a vote as early as this week.

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Over the weekend, signs emerged that Republicans may challenge the Democratic effort because it would pay for the tax breaks with a surcharge on people making more than $1 million a year. Sen. Jon Kyl (R., Ariz.), the No. 2 Senate Republican, raised eyebrows on Capitol Hill when he said on "Fox News Sunday" that the payroll tax holiday hasn't helped create jobs, and added that increasing taxes on the wealthiest taxpayers would damage job creation.

On Monday, Senate Minority Leader Mitch McConnell (R., Ky.) had a similar message, raising the odds that Republican leaders are moving to line up opposition.

"I think it's safe to say that any attempt to pass another temporary stimulus funded by a permanent tax hike on the very people we're counting on to create the private-sector jobs we need in this country is purely political, and not intended to do a thing to help the economy, since we already know it's likely to fail with bipartisan opposition," McConnell said on the Senate floor.

"Too often it seems they only care about keeping taxes low for the richest of the rich," Reid said on the Senate floor. "Opposition by Republicans smacks of partisanship because this tax cut has President Obama's fingerprints on it--it was his idea."

The Social Security payroll tax cut was enacted as part of last year's agreement to extend Bush-era tax cuts through 2012. The tax cut, which reduced the Social Security payroll taxes paid by employees to 4.2% of earnings from 6.2%, is set to expire at the end of 2011. U.S. President Barack Obama had earlier proposed extending the tax cut and further lowering the taxes paid by employees to 3.1% of earnings.

Senate Democrats plan to offset the cost of renewing the tax cut--and also reducing the amount that employers contribute to Social Security--with a 3.25% surtax on income over $1 million. The alternative is to find another way to pay for the tax cut or to add to the federal budget deficit.

Earlier this month, Congressional Budget Office Director Doug Elmendorf said in congressional testimony that extending the reduction in workers' Social Security contributions would increase workers' disposable income and increase production and employment. Still, he said that the effects would be "spread overtime" and said that budget forecasters expected that the majority of the temporary increase in take-home pay would be saved rather than spent.

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