Senate Democrats push Obama payroll tax cut

By Andrew Taylor

Associated Press

Published: Monday, Nov. 28 2011 1:18 p.m. MST

WASHINGTON — Senate Democrats are pressing ahead on President Barack Obama's plan to cut in half every worker's payroll taxes next year — paid for by a 3.25 percent tax surcharge on the very wealthy.

The $248 billion plan would trim Social Security payroll taxes from 6.2 percent to 3.1 percent in hopes of propping up the still-weak economy. It also would cut in half the 6.2 percent tax paid by employers on the first $5 million of their payroll.

A spokesman for Senate Majority Leader Harry Reid, D-Nev., says Democrats will hold a test vote on the plan later this week.

A 2 percent payroll tax holiday enacted a year ago expires on Dec. 31 and it tops the agenda in the waning days of this congressional term.

Republicans are likely to oppose the plan because it would post a permanent surcharge on income exceeding $1 million, including income earned by many small businesses.

"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," Senate Minority Leader Mitch McConnell, R-Ky., said Monday.

Reid's move is the latest political salvo by Democrats as the two parties spar over the best way to create more jobs. Monday's move appears aimed at drawing a distinction between Democrats and Republicans on taxes, with Reid seeking to maneuver Republicans into opposing the payroll tax cut.

Indeed, the payroll tax cut is unpopular with many Republicans who say the existing 2 percent cut hasn't done much to create jobs.

But many economists say that allowing the tax cut to expire is likely to do at least some damage to the economy.

"More than 120 million families took home an extra $120 billion this year thanks to payroll tax cuts Democrats championed," Reid said. "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."

Republican leaders have signaled a willingness to work with Democrats on both the payroll tax cut and a further extension of jobless benefits for people who have been unemployed for six months or more. But the proposals are so expensive that it's unlikely that lawmakers will find a way to fully pay for them.

Instead, after spending most of the fall waiting for the deficit "supercommittee" to devise a plan to cut the deficit by $1.2 trillion or more, it seems that lawmakers are actually on track to increase the deficit as the congressional session comes to a close.

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