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Government, Politics & Issues

Payroll taxes will rise in January unless Congress takes action

This article first appeared in the St. Louis Beacon, Nov. 27, 2011 - WASHINGTON - Starting five weeks from now, most workers will notice that their paychecks are a bit smaller -- to the tune of $1,000 a year for the average American.

At least that's what will happen if Congress takes no action next month to extend the payroll tax cut. And, in the wake of the failure of the "super committee" to reach a deficit-reduction deal last week, a payroll-tax battle is now brewing on Capitol Hill

President Barack Obama and Democratic leaders, including U.S. Sen. Dick Durbin, D-Ill., are pushing to extend the current payroll-tax holiday and pay for it by imposing a surcharge on the wealthiest Americans.

"Let's help the working families who are struggling, paycheck to paycheck, and ask those who are the most well off in America to pay a very small percentage in increased taxes," Durbin, the second-ranking Senate Democrat, said on Fox News Sunday.

But congressional Republicans oppose a tax surcharge on the wealthy, and some also oppose extending the payroll-tax cut. "The payroll tax holiday has not stimulated job creation; we don't think that is a good way to do it," said Sen. Jon Kyl, R-Ariz., the second-ranking Republican, on the same news show.

Kyl's comment was the first time a leading Senate Republican indicated that he might favor letting the payroll-tax cuts end on schedule. "By taxing the people who provide the jobs, you put off the day that we have economic recovery and job creation in this country," arugued Kyl. However, other Republicans are open to extending the holiday.

Durbin's colleague in the Senate Democratic leadership, Sen. Charles Schumer, D-N.Y., upped the ante at bit, telling NBC's "Meet the Press" that Democrats -- who have a Senate majority -- would try to force repeated votes on the payroll tax extension in the coming weeks. He said some GOP senators had made "favorable noises" in favor of an extension, and he added that Democrats would be "open to other ideas of paying for it" if Congress blocks a tax surcharge on the wealthy.

This week, Obama is scheduled to make his case for extending the payroll-tax cuts in an appearance at a high school in Scranton, Pa. The White House announcement said Obama would "continue to push Congress to act to extend and expand the payroll tax cut that has given tax breaks to millions of families across the country this year."

One factor that appeared to argue in favor of a payroll-tax cut extension was the tacit support of Americans for Tax Reform. The group's president, Grover Norquist, told Meet the Press that he was "not opposed to extending the payroll tax particularly." However, he said it would be wrong to pay for that extension by hiking taxes on the rich.

The payroll tax cut reduced employes' share of the Social Security payroll tax to 4.2 percent from 6.2 percent for this year at a cost to the government of $111.7 billion. Budget experts said that is giving the average worker about $1,000 in extra funds this year. Some economists say that failing to extend the payroll tax cut and unemployment benefits might cut gross domestic product growth next year and cost jobs.

Durbin said it "defies logic" that "at a time when working families in this country are struggling, paycheck to paycheck, when we need them to have the resources to buy things in our economy to create wealth and profitability and more jobs, that the Republican position is to raise the payroll tax."

But Kyl said, "We have to deal with unemployment insurance, payroll taxes and a lot of other items before the end of the year. The problem here is that the payroll tax doesn't go into general revenue; it supports Social Security. And you can't keep extending the payroll tax holiday and have a secure Social Security."

Prospects Remain for a Deficit-cutting Deal

Even though the super committee gave up last week , some lawmakers are holding out hope that Congress will be able to reach a deficit-reduction compromise next year.

"I believe this is a contrarian view, but we have a good chance of actually getting the big package, big deficit reduction in 2012," Schumer said. "The pressure on both parties to come together in the middle ... is going to be stronger and stronger."

For his part, Durbin said he believed a long-term deficit deal should be modeled on last year's proposals of the National Commission on Fiscal Responsibility and Reform -- known as the "Bowles-Simpson plan" because it was co-chaired by Democratic former White House Chief of Staff Erskine Bowles and former Sen. Alan Simpson, R-Wyo. Durbin voted for that plan and later was part of the "Gang of Six" senators who made somewhat similar proposals.

"That is the basic guideline, as I see it, to reaching the kind of stable, growth situation creating jobs now and reducing our long-term deficit," Durbin said, calling for "two dollars in [spending] cuts for every dollar in revenue. Now let's do this in a thoughtful way that creates jobs now, does not handicap or damage Medicare or Social Security or Medicaid in the long run, and creates the kind of approach that is balanced."

Durbin said that a Republican proposal to the super committee, presented by Sen. Pat Toomey, R-Pa., "was not even close to the Bowles-Simpson proposal." But Kyl defended that proposal, saying it would have increased revenue substantially by reforming the federal tax system.

On Sunday, Toomey said on ABC's "This Week with Christiane Amanpour" that -- despite the super committee's failure -- he was "cautiously optimistic" that a deficit-reduction deal could be worked out in Congress next year.

"I spoke with a number of Democratic senators who were not serving on the super committee, who thought that the plan that we put forward was very constructive, was reasonable," Toomey said. "So I think there's a chance to work with some of the more moderate members of the Democratic caucus, who want to make progress, who realize how important this is."

For his part, Durbin said that any major tax reform needs to move in the direction of being more "progressive" -- that is, not increasing the tax burden on lower or middle income Americans.

Durbin said, "There was a commitment in the Gang of Six, there was a commitment in Bowles-Simpson, to at least maintaining, if not improving, the progressivity of the tax code. That means giving working families a fighting chance. I hope we can establish that as one of the principles of future deficit reduction."

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