Senate Republicans who have been intensely devoted to tax cuts may find themselves this week on record in support of a big tax hike on the middle class.
Senate Majority Leader Harry Reid announced Monday plans to consider a bill to extend President Obama’s payroll tax cut which benefits 160 million American workers. Without an extension, those tax breaks will expire at the end of the year, however.
Sen. Bob Casey’s legislation not only would continue the existing 2-percent payroll tax cut for employees into next year, it would boost it to a 3.1-percent break. The legislation would also cut in half (from 6.2 percent to 3.1 percent) the employer-side Social Security payroll taxes, Democrats say.
Democrats also are quick to note that the extension of the payroll tax cut would not hurt the Social Security Trust Fund one penny, because it would require that the Social Security Trust Fund be reimbursed for the lost revenue.
The extended tax cuts also would not add to the budget deficit because they would be paid for with a 3.25-percent surtax on income over $1 million. It is that millionaire surtax, in which a wealthy taxpayer who makes $1.1 million would pay $3,250 more in taxes, which is likely to raise GOP ire.
Reid also surmises Republican opposition to the extension is due to partisanship because the payroll tax cut originally was President Obama’s idea.
“These are the same Republicans who loudly claim to care about keeping taxes low. But too often it seems they only care about keeping taxes low for the richest of the rich,” Reid says.
Reid anticipated Republican objection to the bill, and sought to tweak Senate Republican Leader Mitch McConnell a bit by noting that the average family in McConnell’s home state of Kentucky would keep $1,330 next year under the expanded payroll tax break. And 70,000 firms in Kentucky would benefit from new tax cuts, as well, Reid says.
“So let’s be clear what a ‘no’ vote on this proposal really means. It’s a vote to deny tax relief to millions of businesses. It’s a vote to raise taxes for 120 million families by nearly $1,000 each,” Reid adds. “Republicans who vote ‘no’ will literally be taking money out of the pockets of middle-class taxpayers.”
Reid cites economist Mark Zandi of Moody’s who predicts the U.S. economy will likely plunge back into recession if Congress does not extend this tax cut.
“It is clear neither our fragile middle class nor our fragile economic recovery can afford the kind of setback a failure to extend and expand these tax cuts would bring,” the majority leader says. “Republicans say we cannot afford to raise taxes. If they choose to oppose this payroll tax cut, we’ll know what they meant to say was, ‘We cannot afford to raise taxes on the rich –- but we are happy to raise taxes on the middle class.'”
UPDATE: In an interview with Bloomberg Television, Barclays analyst Michael Pond warns that letting the payroll tax cut expire could damage the economy by causing a drop in GDP of up to 1.5 percent.
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Scott Nance is the editor and publisher of the news site The Washington Current. He has covered Congress and the federal government for more than a decade.