Senate Majority Leader Harry Reid, D-Nev., said Monday that he plans to introduce legislation this week that would extend the payroll tax cut that is due to expire at the end of the year.

The tax cut extension would be offset with a surtax on millionaires, setting up a battle with Republican lawmakers who are opposed to any tax increases.

“This week we’ll introduce legislation that would give the economy a boost by putting money back in the pockets of middle-class workers and businesses by extending and expanding the popular payroll tax cut,” Reid said on the Senate floor Monday. “More than 120 million families took home an extra $120 billion this year thanks to payroll tax cuts Democrats championed. The average family held onto $935 more of their heard-earned dollars this year. We need to assure those families that they can rely on that tax cut next year as well.”

President Obama has also been campaigning for an extension and expansion of the payroll tax cut in the aftermath of the failure of a congressional “supercommittee” to agree on a plan for reducing the deficit while extending the payroll tax cut (see Obama Pushes for Extension of Payroll Tax Cut). The tax cut, which was enacted last December as part of the deal to extend the Bush tax cuts, cut the Social Security withholding tax rate for employees by 2 percentage points from 6.2 to 4.2 percent. As part of his jobs package, Obama has proposed extending and expanding the payroll tax cut by cutting it in half for employees, providing a $1,500 tax cut to the average family.

Obama has also proposed extending the tax cut to businesses, cutting in half the taxes they pay on their first $5 million in payroll, and completely eliminating payroll taxes for companies that increase their payrolls by either adding new workers or increasing the wages of their current workers, capped at the first $50 million in payroll increases.

“This legislation does more than just protect the tax cuts Americans already count on,” said Reid. “It deepens and expands that tax relief as well. Next year, 120 million families will keep an average $1,500 because of this legislation. That means they’ll have more money to spend on necessities like gas and food, and will help spur economic growth in their communities. Business will also benefit from this tax cut. Ninety-eight percent of American business will see their payroll taxes cut in half on the first $5 million in wages they pay out. And firms that add workers will benefit from a full payroll tax holiday on their increase in wages.”

The payroll tax cut extension would be paid for with a 3.25 percent surtax on income over $1 million.

“A person who makes $1 million a year won’t pay an extra penny,” said Reid. “Someone who makes $1.1 million—an extra $100,000—will pay only $3,250 more.”

Democrats had hoped the supercommittee would include the payroll tax cut in the plan they were tasked with producing for cutting the national debt by about $1.2 trillion over 10 years. Other items that also have been left unfinished in the wake of the supercommittee disbanding may also be included in the payroll tax cut legislation. Those include an extension of unemployment benefits, which are due to expire at the end of the year, along with a patch for the alternative minimum tax to keep the AMT from affecting millions more taxpayers, and the so-called “doc fix” for keeping Medicare reimbursement of physicians from decreasing.

However, Republicans are not likely to agree to the millionaire surtax. Senate Minority Leader Mitch McConnell, R-Ken., said Monday that the two parties should work together to craft legislation that has a chance of passing.

“For the past several weeks, I’ve implored the Democrat majority here in the Senate to work with us on a number of job-creating bills that have already attracted strong bipartisan support in the House,” he said. “It seems to me that if the two parties share control of power in Washington, we should spend our time and our energies identifying job-creating measures the two political parties do agree on and make them law. It’s no secret that many people at the White House and a number of Democrats here in the Senate would rather spend their time designing legislation to fail, in the hopes of trying to frame up next year’s election. But with all due respect to the political strategists over at the White House, I think most Americans would rather we took a different approach. And that’s why I think we should put aside the massive stimulus bills, along with the permanent tax hikes that Democrats are calling for in order to pay for them. In fact, 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 is purely political, and not intended to do a thing to help the economy, since we all know it’s likely to fail with bipartisan opposition.”

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