Senate Republicans are offering their own legislation to extend the payroll tax cut while avoiding an extra surtax on millionaires.
Senate Minority Leader Mitch McConnell, R-Ken., offered up the plan on Wednesday as an alternative to Senate Democrats’ plan for offsetting the extension with the millionaire surtax. McConnell’s plan, which was introduced as legislation by Sen. Dean Heller, R-Nev., would pay for the cost of the extension by freezing the salaries of federal government employees for three years, as well as cut the federal workforce by 10 percent. It would also do means testing of unemployment benefits and Medicare.
“The President and Democrats in Congress are saying we ought to recoup the revenue we won’t get from one group of taxpayers by socking it to another group, a significant number of whom happen to be employers,” said McConnell. “What this really means is that one way or another they want the money coming back to Washington—so that the President and his allies in Congress can divvy it up how they want, protecting and aiding the politically-favored few.”
President Obama and Senate Democrats have been pushing to extend and expand the payroll tax cut, which is due to expire at the end of the year. The tax cut currently shaves 2 percentage points off of Social Security and Medicare payroll withholding taxes, reducing them 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 to 3.1 percent 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.
The plan outlined by McConnell would extend the current 2 percent payroll tax cut without expanding it to 3.1 percent or provide the tax cut for small business employers.
Senate Majority Leader Harry Reid, D-Nev., introduced legislation this week that would pay for the $265 billion cost of the extension and expansion of the payroll tax cut with a 3.25 percent surtax on millionaires (see Democrats to Introduce Bill to Extend Payroll Tax Cut). A test vote on the bill, known as the Middle Class Tax Cut Act of 2011, is scheduled for Friday.
President Obama has been promoting the Democratic plan to extend and expand the payroll tax cut for another year, delivering a speech Wednesday at a high school in Scranton, Pa. He warned that failing to extend the payroll tax cut would deliver a “massive blow” to the economy, with the typical middle-class family seeing their taxes go up by $1,000 next year. On the other hand, they would get an average tax cut of $1,500 if Congress voted for his plan.
“Republicans say they’re the party of tax cuts,” he said. “That’s what they say. A lot of them have sworn an oath to never raise taxes on anybody as long as they live. That doesn’t square with their vote against these tax cuts. I mean, how is it that they can break their oath when it comes to raising your taxes, but not break their oath when it comes to raising taxes for wealthy people? That doesn’t make any sense. I hope that they don’t want to just score political points. I hope that they want to help the economy. This cannot be about who wins and loses in Washington. This is about delivering a win for the American people. That’s what this is about. You know, $1,500—that’s not a Band-Aid for middle-class families, that’s a big deal.”
The Republican alternative bill, known as the Temporary Tax Holiday and Government Reduction Act, would extend the current temporary payroll tax holiday for one year without adding to the federal deficit, eliminate millionaires’ and billionaires’ eligibility for unemployment compensation and food stamps, and require millionaires and billionaires to pay higher Medicare premiums. The bill would offset the costs by reducing the size of the federal workforce and extending the current federal employee pay freeze for three additional years, an idea from the bipartisan Simpson-Bowles commission.
The bill also includes the Buffett Rule Act, named after billionaire Warren Buffett, which allows taxpayers who feel they are not taxed enough to voluntarily donate any amount of money to the U.S. Treasury on their tax returns for the purpose of paying down the national debt. Republicans said it would also cut the size of the federal budget deficit by $111 billion.
“My proposal is a practical solution that borrows a cost-cutting idea from the bipartisan Simpson-Bowles commission and can pass Congress and be signed into law,” Heller said in a statement. “Congress has an opportunity to do the right thing and vote for a bill that will extend the temporary payroll tax cut while preserving job growth and treating taxpayers’ dollars responsibly. It’s time my colleagues put political gamesmanship aside and come together to pass legislation that will continue to provide relief for hard-working Americans already struggling in this tough economic environment.”
However, Democrats argued that the Republican proposal would be counterproductive as it would cut jobs. The National Treasury Employees Union also objected to the proposed pay freeze and cuts in the federal workforce. “Federal employees are already under a two-year pay freeze,” said NTEU president Colleen Kelley in a statement. “Continually freezing federal pay farther and farther into the future and cutting agencies that provide needed services to the public without asking the wealthiest Americans to share in the sacrifice at all is not what the majority of Americans support.”
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