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Reid Offers New Democratic Plan to Pay for Payroll-Tax Cut Reid Offers New Democratic Plan to Pay for Payroll-Tax Cut

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Congress / CONGRESS

Reid Offers New Democratic Plan to Pay for Payroll-Tax Cut

Senate Majority Leader Harry Reid, D-Nevada, after a Democratic caucus meeting.(AP Photo/Pablo Martinez Monsivais)

photo of Dan  Friedman
December 5, 2011

Senate Majority Leader Harry Reid, D-Nev., on Monday outlined a new Democratic proposal to expand a payroll-tax cut for employees while tweaking how the bill is paid for in a nod to Republican concerns.

Democrats will scale back a bill rejected in a Senate vote last week by eliminating proposed payroll-tax benefits for employers. The new bill will leave in place a proposal to cut the payroll-tax rate for employees from 4.2 percent to 3.1 percent, Democrats said. That will lower the cost of the plan from $265 billion to $180 billion, in an attempt to address GOP concerns about the measure's overall cost.

President Obama also spoke publicly Monday to urge Democrats to extend the payroll tax cut, as well as federal unemployment benefits. “Keep your word to the American people and don’t raise taxes on them right now,” Obama said.

 

Senate Democrats are not including an extension of unemployment benefits in the bill, or a “doc fix” preventing physicians who accept Medicare from taking a pay cut. Because Democrats believe both will be part of a final deal, their exclusion indicates that Reid’s current offer is a negotiating position that Democrats expect Senate Republicans to block.

House Republican leaders are moving their own plan this week to extend the payroll-tax rate and could release as soon as Tuesday a bill to extend the current rate. They were considering including an extension of unemployment benefits and the “doc fix” in a separate bill. Senate Republicans said Democrats have not shared their plans' details with Republicans, an indication their offer is no real compromise.

“It’s hard for the majority to call this a compromise when the other side hasn’t been involved,” said Senate Finance ranking member Orrin Hatch, R-Utah. “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.”

Democrats would pay for the new bill through a combination of measures. The bill will keep a surtax on income of more than $1 million a year but cut the 3.25 percent rate they previously proposed nealry in half. Reid called the revised rate, which was being finalized on Monday “a tiny, tiny surtax.” 

The new bill would sunset the surtax after 10 years. This attempts to address GOP concerns that the Democratic plan offered a permanent tax increase in exchange for a temporary payroll-tax cut. Reid called that change a significant concession.

Democrats would also borrow from a list of non-health care mandatory savings created during super-committee talks. These ideas, such as cutting farm subsidies, have been on the table since they were identified by a group led by Vice President Joe Biden earlier this year and are viewed as likely bipartisan ways to pay for a final deal on the payroll-tax and unemployment benefits.

Democrats will adopt a proposed offset included in last week’s GOP alternative for extending the current payroll-tax rate for employees: a means test that prevents people who earn a million dollars a year from receiving federal social benefits, such as unemployment benefits and Social Security. The heads of the Simpson-Bowles deficit-reduction commission proposed such a step last year.

Both the means test and whatever mandatory saving provision from the super committee Democrats choose look likely to land in a final payroll-tax deal in the next few weeks. The surtax on millionaires will not be part of such a deal. Reid was set on Monday to start the process of forcing a vote this week. A cloture vote on taking up the new payroll bill will be required by Friday but is more likely to occur Thursday, Democrats said.

Democrats said they were encouraged by the support of one Republican, Sen. Susan Collins, R-Maine, for their payroll proposal last week, and expect to pick up additional GOP votes this week. “This is a serious proposal and Republicans should take it seriously,” Reid said, arguing that the Democratic plans enjoy strong public support.

 

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