Payroll Tax Battle Absorbs Ideological Issues

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Whether playing hardball, or being the nice guy, the President has tiring work

In what has been quite a season for stone-wall congressional conflicts,  the latest match-up is being fought over the payroll tax cut set to expire at the end of this year. More specifically, how to finance an extension of the cut.

What’s this payroll tax I hear you ask? And why is it becoming another epic partisan battle?

In this instance, the payroll tax is a tax imposed on employers and employees by the federal government; it comes in the form of  income withholding, social security and medicare, and unemployment taxes all bundled up. Currently levied at 4.2%, the tax is set to increase to 6.2% on January 1 if a deal is not reached.

And we should care because the 2 percent increase will cost most working Americans roughly an extra $1000 per year, and certainly small, up-and-coming businesses will also feel more than a little pinch. Sadly, already due to the deadlock, the current deals on the table concern only a tax cut extension for the employee element of the tax.

Under the original Democratic proposal, both the employer and employee shares of the payroll tax would be cut to 3.1%, paid for by a temporary 3.25 % surtax on earnings over $1 million. As Robert Reich, economist, professor and former Clinton labor secretary, points out: “This means someone who earns $1,000,001 would pay 3 and a quarter cents extra next year. Someone earning one million and ten dollars would pay an additional three dollars and twenty-five cents.”  So what’s the big deal?

Who knows –the majority of the Republicans said no, and so a new deal is now on the table. The current deal scraps the tax cut for the employer (bringing the price tag down to $185 billion over 10 years, from $265 billion), and pays for the remaining cut with a lower, 1.9% ten-year tax on income over $1 million.

Harry Reid, Senate Majority Leader is insisting that Democrats are “offering a serious proposal with meaningful concessions,” and that Republicans ought only to “dismiss this at their peril.”

In fact, this issue is so important that Senator Reid is threatening to delay the Christmas break: “We are not going to go home on vacations,” he said, until we reach a deal and extend the expiring tax cut.

But Republicans are still stuck on the millionaire tax issue, insisting that this method of financing will be harmful to small businesses. Instead, their suggestion is for the cut to be paid for by extending the pay freeze on federal workers for another four years, and increasing Medicare premiums on wealthy beneficiaries over time.

So while it is a small blessing that both parties are in favor of an extension, so far the only counter proposal Republicans have produced wilted with just 20 votes in the Senate last week.

So what next?

House speaker Boehner told reporters that “we’re continuing to work on this, and we expect that before the week’s over, we’ll talk to our members again.” Some members of the party have started floating the idea of a simple rebate, keeping money in pockets. “The very fiirst stimulus bill, you know, we wrote checks to the American people. Some would argue that that’s a more efficient way of dealing with this,” Speaker Boehner said. “The concern about the payroll tax cut is this, is that we’re taking money out of the Social Security Trust Fund.”

So, as with the other show-downs this year. We viewers must again, increasingly begrudgingly, watch and wait.

The other takeaway from this saga is that as the election cycle continues to near its frenzied finale, economic problems will continue to be caught up with ideological and electoral ones. For example, pitting the rich against the middle class –”The taxes for the richest are going to go up. Period,” Senator Reid said — is destructive to finding a bi-partisan solution, and may not have occurred had this not been the prelude to a campaign year.

But this is the Democrats finally playing hard ball, something many supporters have been waiting for years to see — especially after the GOP recently killed the president’s jobs plan, opposing different elements, from infrastructure investments to the tax fight currently before lawmakers.

After accusing the GOP of hypocrisy: swearing never to raise taxes, and then faltering over a tax break for the middle class, and reneging on the long-held belief that tax cuts pay for themselves, the final word from the president is that:”I’m willing to work with Republicans to extend the payroll tax cut in a responsible way,” but “what I’m not willing to do is to pay for the extension in a way that actually hurts the economy.”

So this issue is certainly about the economy, but it is also about the 2012 election and the necessity, for Democrats at least, to draw firm ideological lines between themselves and the Republicans if there are to win.

Related articles

• President Vows to Veto Deficit Reduction Without Tax Increase (legallyeasy.rocketlawyer.com)
• Republicans SHould Love The Payroll Tax Cut (article.businessinsider.com)
• GOP Rejects Democrats’ New Payroll-Tax Bill (online.wsj.com)
• Payroll Tax Cut: Harry Reid Says No Christmas Vacation For Obama, Senate Until Measure Passes (huffingtonpost.com)
• Obama accuses GOP of hypocrisy in payroll tax fight (nbcpolitics.msnbc.msn.com)