Democrats, Republicans agree tax break should continue but not how to pay for it

By Karoun Demirjian

Wednesday, Nov. 30, 2011 | 4:18 p.m.

Democratic leaders spent the first part of this week warning Republicans that failing to extend the payroll tax cuts Congress approved last year would create a troubling economic setback, to the tune of $1,066 per year for the average Nevada household.

But it turns out the Republicans also think letting the payroll tax break lapse would be a bad idea. So what’s left to fight about?

How to pay for it, of course. The fight pits Nevada Sens. Harry Reid and Dean Heller against each other.

Pay-fors are the focus of partisan battles this season, as Congress scales back its goals (once upon a time, “success” was passing sweeping policy overhauls, now it’s a good day when you can get lawmakers to agree on a six-week budget extension) and focuses on end-of-year necessities, like tax program extensions, and funding unemployment insurance benefits.

But even basic necessities have a cost, and at a time when the country is focused on debt reduction, neither party wants to authorize a spending provision, however important, without trying to cover expenses.

What to pare back to pay for the payroll tax? They cannot agree.

Senate Democrats and Republicans are pushing slightly different proposals. The Democrats prefer a proposal from President Barack Obama’s jobs plan: a 50-percent reduction of the payroll tax for all workers and employers, on the first $5 million of their payroll.

The Democrats propose paying for their proposal, which carries an estimated cost of $248 billion, with one of the Republicans’ least-favorite trade-offs: a millionaire’s surtax. The 3.25 percent tax would be levied on a limited set — “people who make more than a million dollars a year, pay a tax on money they make over a million dollars,” Reid explained Tuesday. “I think it’s fair, the American people think it’s fair; the only people who don’t think it’s fair are the Republicans here in the Senate.”

Normally, Social Security taxes 6.2 percent of the first $106,800, a deduction that’s taken out of every paycheck; the Democrats’ proposal would reduce that to 3.1 percent. Since December of last year though, workers have only been paying 4.2 percent of their base income in payroll taxes.

Republicans want to extend the current system: the 4.2 percent rate for workers approved under last year’s tax overhaul bill, which also extended the Bush tax cuts through the end of 2012.

They propose paying for it by extending a current federal employees’ pay freeze for three years, reducing the federal workforce and requiring millionaires and billionaires to pay higher Medicare premiums and forego their eligibility for unemployment insurance if laid off. The bill also includes an invitation to billionaires who feel so motivated to donate extra cash to the U.S. government (the so-called “Buffet Rule Act”, a proposal Republicans adopted to counter Obama’s “Buffet Rule,” which is essentially the millionaires’ tax).

Officially, the Republican proposal is being submitted in Heller’s name.

“The Senate majority knows their bill is engineered to fail,” Heller said in a statement about the Republican alternative. “Rather than finding a solution that will ensure hard-working Americans receive this temporary tax break, the Senate majority continues to believe scoring political points is more important than progress. Americans want solutions, not more partisan bickering.”

But partisan bickering will continue since the Democrats don’t like the Republicans’ pay-for proposal any more than the Republicans liked the Democrats’ pay-for proposal.

“Democrats’ proposal would put more money in the pockets of middle class families and create more jobs,” Reid’s spokesman, Adam Jentleson, said in a statement today. “The Republican proposal cannot pass the Senate as it stands, but now that Republicans have reversed their position on this middle-class tax cut, we look forward to working with them to negotiate a consensus solution.”

Even before Heller name was top-lined on the Republicans’ payroll tax proposal Wednesday, Rep. Shelley Berkley -- his rival-apparent for the Senate in 2012 -- was stumping for the Senate Democrats’ version of the payroll tax cut extension on the House floor.

“This should be a no-brainer. Opposition to the Middle Class Tax Cut Act of 2011 [the proposal’s party-given name] is a vote to raise taxes on middle-income families,” Berkley said. “This would be devastating for a state like Nevada...but instead of wholesale support for this common sense measure, we’re getting excuses and roadblocks.”

This evening, Berkley’s campaign released a video criticizing Heller’s version.

“Dean Heller needs to back off Medicare. We need to extend middle-class tax cuts to help grow our economy and we should do it by rolling back special tax breaks for millionaires, not by slashing Medicare benefits,” she said, a reference to the requirement in the bill that Medicare premiums for the rich rise. “Any roll back of Medicare benefits is nothing short of a back door attempt to undermine the program and a slippery slope to cutting more and more of the benefits that seniors rely on.”

The slippery-slope argument, however, works for Republicans too, when they look at the alternative: raising taxes.

“There’s no question Congress should extend the payroll tax cut but we shouldn’t do it by turning around and raising taxes on employers everywhere,” Heller said on the Senate floor. “With a little common sense, we can pay for the payroll tax cut without raising taxes on job creators...Since my colleagues on the other side of the aisle frequently talk about how the richest Americans should be doing more, I believe this is an approach that both Democrats and Republicans can support.”