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White House mum on tax cut if no deal to pay costs

By Julie Pace

Associated Press

Published: Tuesday, Nov. 29 2011 2:30 p.m. MST

Alan Krueger, chair of the White House Council of Economic Advisers listens at left as White House Press Secretary Jay Carney speaks during the daily news briefing at the White House in Washington, Tuesday, Nov. 29, 2011.

Carolyn Kaster, Associated Press

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WASHINGTON — The White House refused to say Tuesday whether President Barack Obama would sign into law an extension of payroll tax cuts that is not paid for, as the top Senate Republican predicted lawmakers eventually would reach an agreement to prevent taxes from increasing on 160 million Americans.

The tax cut is set to expire at the end of the year, taking $165 billion out of the economy and raising taxes by about $1,000 on the average household unless Congress and Obama act. As the deadline approaches, political support is building for at least continuing the tax cut — and thereby heading off a politically bruising tax hike — but the holdup remains how to offset the cost.

Obama spokesman Jay Carney said the president prefers that lawmakers find a way to pay for the cuts that does not add to the federal debt. But Carney pointedly avoided questions from reporters about what Obama would do should Congress pass the extension without figuring out how to cover the cost.

The White House is being pressed on whether Obama is showing maneuvering room in his stand as he seeks to give a jolt to the economy, or at least to prevent another setback.

"''We don't know what the end game is yet," Carney said. "There is no value in this process — or ultimately to the American people, who want and deserve this tax cut — to negotiate an end game here before we even have a vote. So I'm not going to go any further on that."

Obama included the extension and expansion of the payroll tax cuts in the jobs bill he released in September. In pressuring Republicans to get behind that bill, Obama has been emphatic that every single provision, including the extension of the payroll tax cut, will be offset somewhere else so the enormous federal debt will not worsen.

When he unveiled his plan, he put it plainly: "The American Jobs Act will not add to the deficit. It will be paid for."

Senate Democrats are set to hold a test vote on a plan later this week that would pay for Obama's proposed extension and expansion of the payroll tax cut with a 3.25 percent tax surcharge on the very wealthy. The White House says the president supports that proposal.

But Senate Minority Leader Mitch McConnell insisted Tuesday that Republicans would not back an increase in taxes on the wealthy as a method of paying for the extension.

However, McConnell did say the GOP would propose extending last year's reduction and paying for the measure, though he did not say how.

"In all likelihood we will agree to continue the current payroll tax relief for another year, but we believe it should be paid for," McConnell said.

McConnell said there is "clearly a majority sentiment" among Senate Republicans to renew last year's payroll tax cut.

He cited the near $15 trillion national debt as the reason why it must be offset with savings.

In a deal with Obama last year, Congress cut the 6.2 percent payroll tax — which helps finance Social Security — to 4.2 percent for this year, a reduction that cost about $112 billion.

The president has proposed cutting the payroll tax further, to 3.2 percent next year at a cost of $179 billion, plus adding another $69 billion in payroll tax breaks for employers.

Without at least extending last year's cuts, the White House says a family making $50,000 would pay about $1,000 more in taxes in 2012.

Many economists say that could put another dent in the already shaky economic recovery.

Associated Press writer Alan Fram contributed to this report.

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