J. Scott Applewhite, Associated Press
President Barack Obama speaks to a joint session of Congress at the Capitol in Washington, Thursday, Sept. 8, 2011.
WASHINGTON — President Barack Obama is challenging congressional Republicans to back an aggressive plan to cut payroll taxes in an effort to revive the economy and entice employers to hire more workers.
Obama wants to extend and expand a payroll tax cut that is scheduled to expire at the end of the year. He reminded lawmakers that if they fail to act, they will be allowing taxes to increase on nearly every worker who earns a wage, starting in January.
That is a prospect the president wants to avoid as he embarks on a tough re-election fight, with unemployment stuck at 9.1 percent.
"I know some of you have sworn oaths to never raise any taxes on anyone for as long as you live," Obama told a joint session of Congress on Thursday night. "Now is not the time to carve out an exception and raise middle-class taxes."
In December, Congress passed a one-year cut in Social Security taxes, reducing the rate for workers from 6.2 percent to 4.2 percent for 2011. Employers still pay the 6.2 percent rate, which is applied to wages up to $106,800.
Appealing to Republicans in Congress who usually favor tax cuts, Obama proposes to extend the tax cut for a year and make it bigger — reducing the Social Security taxes paid by workers to 3.1 percent for 2012. Obama's plan also would cut in half — to 3.1 percent — the Social Security taxes paid by businesses on the first $5 million of their payroll. About 98 percent of firms have payrolls below the $5 million threshold, according to the White House.
Companies that increase their payroll — through new hires or pay raises — also would get a break on their payroll taxes.
The tax cuts are part of a package of nearly $450 billion in tax reductions and new federal spending that Obama unveiled Thursday night. Tax cuts account for more than $250 billion of the package. They include tax credits for companies that hire unemployed workers and veterans, and an extension of tax provisions that enable companies to more quickly write off the cost of new equipment.
Obama said he would introduce a new deficit reduction plan in the coming weeks that would more than cover the cost of his jobs package. He said the plan would couple future spending cuts with tax increases for the wealthy and the elimination of some tax breaks for corporations. Tax increases will be a tough sell in Congress.
House Speaker John Boehner, R-Ohio, said Obama's proposals "merit consideration." But other Republican lawmakers were less charitable.
"The president's plan is nothing new," said Sen. Orrin Hatch of Utah, the top Republican on the Senate Finance Committee. "It simply doubles down on the same failed policies that he has pursued before. And I don't expect they will be any more successful than they were the first time around."
Vice President Joe Biden said Friday the administration is prepared to hear rival Republican proposals, particularly if they come up with "a better idea."
At the same time, Biden said on a morning television program that Obama is "not prepared to compromise in terms of doing nothing." He said many Americans are "hanging on the edge" and need Washington's urgent attention.
House Republican leader Eric Cantor said he was happy to hear Biden's statements and that the GOP is prepared to work with the administration on a job-creation program as long as the White House doesn't pursue an "all-or-nothing" approach.
The goal of cutting payroll taxes is to increase take-home pay for workers in the hope they will spend the money, creating more demand for consumer goods and services. Workers making $50,000 a year would see their take-home pay boosted by $1,550; those making $100,000 would get $3,100.
Economists say the president's jobs package could go a long way toward preventing the economy from getting worse, but significantly boosting job growth will be harder to achieve.
"The thing that is going to induce firms to hire is having demand for their product," said Roberton Williams, a former tax analyst at the Congressional Budget Office who is now a senior fellow at the Tax Policy Center. "If they see brighter skies ahead, they'll start hiring people to meet the demand. But until they see the promise of that, they are going to be very leery of expanding their payroll, and it doesn't matter whether you're subsidizing the cost of hiring a new worker or subsidizing the cost of an investment."
Mark Zandi, one of several economists asked by the White House to evaluate the president's proposal ahead of his speech, said that if enacted the plan would add 1.9 million jobs and reduce the unemployment rate by 1 percentage point. Zandi is chief economist for Moody's Analytics.
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Even though the White House says Social Security would be reimbursed for the lost revenue, some seniors' groups are concerned that reducing payroll taxes could threaten the retirement and disability program.
"This proposal to extend and expand the payroll tax cut threatens Social Security's independence by forcing the program to compete for limited federal dollars from general revenues, and by breaking the link between contributions and benefits," said Max Richtman, president and CEO of the National Committee to Preserve Social Security and Medicare. "As we predicted back in December, there's no such thing as a temporary tax cut."
Biden and Cantor appeared on CBS's "The Early Show."