Reid Offers Compromise on Payroll Tax Cut

Tuesday, December 6, 2011 Print Email

Senate Majority Leader Harry Reid, D-Nev., offered Monday to compromise on how to pay for the payroll tax cut extension in an effort to convince more Republican lawmakers to vote for the bill.

Last week, both Democratic and Republican versions of the tax cut extension failed to win enough votes to pass in the Senate (see Senate Fails to Pass Payroll Tax Cut Extension Bills). The Democratic version would pay for the cost of extending and expanding the payroll tax cut for both individuals and businesses through a 3.25 percent surtax on millionaires, while the Republican version offset the cost of simply extending the payroll tax cut for employees with a three-year pay freeze for federal workers, a 10 percent cut in the federal workforce and means testing of both unemployment benefits and Medicare.

The latest proposal unveiled by Reid comes in the form of a bill introduced by Sen. Bill Casey, D-Penn., who also introduced the original legislation.

“Like our previous proposal, this scaled-back version will cut taxes for 160 million American workers, including 1.2 million Nevadans,” said Reid. “Sen. Casey’s proposal will allow the average family to keep an extra $1,500 to spend on necessities next year. And like our previous proposal it won’t add a penny to the deficit. It will be fully paid for with a mixture of spending cuts Republicans have already agreed to and a tiny surtax on the top two-tenths of one percent of American taxpayers. Every spending reduction in the proposal was agreed to by a bicameral group of Republicans on the Supercommittee, so we know they support these cuts. And, in an effort to make our proposal more palatable to Republicans, we have conceded to significantly cut the surtax on income above $1 million and make it temporary.”

Reid’s proposal reportedly would cut the surtax on millionaires from 3.25 percent to 2 percent. It would also drop the payroll tax cut for employers. Under the original bill, which has been promoted heavily by President Obama, it would cut in half the taxes employers paid on their first $5 million in payroll, and completely eliminate 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 new version would focus on tax cuts for employees as opposed to employers, as in the Republican version. However, while the Republican version extended this year’s current 2 percentage point cut in Social Security and Medicare withholding taxes, from 6.2 to 4.2 percent, the Democratic version would try to cut the taxes in half, from 6.2 to 3.1 percent, as Obama has proposed. The changes in the Democratic bill would reduce the cost from $265 billion to $180 billion over a decade, according to Bloomberg News.

Republicans are also reportedly working on a new version of their bill. Sen. Orrin Hatch, R-Utah, the ranking Republican member of the Senate Finance Committee, dismissed the Democrats’ latest version. “It’s hard for the majority to call this a compromise when the other side hasn’t been involved,” he said in a statement. “Frankly, the only thing bipartisan about this latest political gambit is opposition to the permanent tax hike on small businesses to pay for temporary one-year tax policy. With the long list of things Congress has to get done by the end of the year and the clock ticking, it’s pretty mystifying that the majority is pursuing more political show votes that won’t go anywhere.”

Among the items on the to-do list for Congress are extending federal emergency unemployment insurance benefits, which are set to expire at the end of the year, “patching” the alternative minimum tax to prevent it from affecting millions more middle-class taxpayers, passing the annual “doc fix” to keep Medicare reimbursement rates for physicians from plunging, and passing extenders for a number of tax breaks, including the R&D credit and deductions of state and local taxes.

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