Grinch Won’t Steal Payroll Tax Cut This Xmas

Posted on December 7, 2011. Filed under: Uncategorized | Tags: , , , |

By Carl Chancellor

Despite the Senate’s failure to pass an extension of a payroll tax cut, look for Congress to stick a big bow on some sort of compromise tax break measure and deliver it to taxpayers during the holidays.

Last Thursday, lawmakers in the upper house rejected two competing proposals to extend the Social Security payroll tax cut, which reduced the payroll tax rate from 6.2 percent to 4.2 percent. The tax cut, which went into effect this year and is set to expire Dec. 31, gave a worker earning $50,000 a year a $1,000 tax break.

Democrats are looking to not only extend the payroll tax cuts, but want to expand it as well. Republican leaders, understanding the potential fallout of letting the tax break expire and effectively increasing taxes on 160 million working Americans, say they are committed to passing an extension.

Sen. Tom Coburn, R-Okla., appearing on “Fox News Sunday”, said that he fully expects the payroll tax cut extension to pass. And earlier in the week, House Speaker John Boehner, R-Ohio, was quoted by the Associated Press saying renewing the payroll tax cut would “boost” the lagging economy.

The problem, however, for GOP leaders is twofold—rallying a Republican rank-and-file that is divided and crafting a compromise measure that Democrats can support.

The Democratic plan, defeated in the Senate, would have lowered the payroll tax to 3.1 percent saving a family with an income of $50,000 more than $1,500 next year. The cost of the tax cut would be paid for by 3.25 percent surtax on incomes exceeding $1 million.

The GOP proposal, which also received thumbs down from senators, would have been a simple extension of the existing law and would have been paid for by freezing the salaries of federal workers through 2015 and reducing the federal workforce by 200,000.

Senate Majority Leader Harry Reid, D-Nev., could introduce compromise legislation to extend the payroll tax cut that would have White House backing sometime this week. Meanwhile, House Republicans plan a closed-door meeting to discuss what to do and are unlikely to vote until next week.

Republican leaders are desperate for a compromise with Democrats that would keep the payroll tax rate at 4.2 percent, but reject the Democrats’ plan to pay for the extension by charging a surtax on people who make more than $1 million a year.

One idea being floated by the GOP to entice their most conservative members is to package the payroll tax extension with a provision to jump start construction on the controversial Canada to the Gulf Coast oil pipeline.

For his part, President Obama turned up the heat in support of a payroll tax extension saying during his weekly radio address: “We’re going to keep pushing Congress to make this happen. They shouldn’t go home for the holidays until they get this done.”

Sen. Reid said he expects the Senate to vote on a revised Democratic proposal by the end of the week.

Turner GPA is a leading D.C.-based national lobbying and government affairs firm dedicated to delivering cutting edge policy advocacy for the manufacturing, defense, aerospace, and energy industries. Members of our professional policy team can be reached at (202) 466-2511. We are also on the Web at www.turnergpa.com.

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