Payroll tax puts Congress at odds

WASHINGTON – The Senate rejected competing measures to extend a payroll tax cut Thursday night, an outward display of partisanship as Republicans and Democrats moved behind the scenes to avert a $1,000 tax increase on American workers come Jan. 1.

Both bills met with GOP opposition, illustrating deep resistance within the ranks despite party leaders’ efforts to coalesce around the politically volatile issue.

First, Republicans blocked President Barack Obama’s proposal to expand the payroll tax break to $1,500 for 2012 and extend it to employers who hire new workers, paying for it with a 3.25 percent surtax on those earning more than $1 million a year.

Then Republicans joined Democrats in rejecting the GOP leaders’ offering, which asked millionaires to pay more for Medicare, continued a freeze on federal employee salaries and cut the government workforce. It failed 78-20, with more than two dozen Republicans and all Democrats voting no.

Obama called Republican opposition to his proposal “unacceptable.”

“They refused to ask a few hundred thousand millionaires and billionaires to pay their fair share,” Obama said in a statement. “It makes absolutely no sense to raise taxes on the middle class at a time when so many are still trying to get back on their feet.”

Democrats portrayed the GOP revolt as a sign that Republicans continue to have mixed views about the payroll tax cut. One Republican, Sen. Susan Collins of Maine, joined in trying to advance the Democratic bill, which needed 60 votes to overcome a filibuster. It failed, with 51 senators willing to cut off debate and 49 opposed, including two Democrats and one independent.

Both parties see political advantage in conducting these votes, as economic issues become central to the 2012 election. Democrats will use the results to paint the GOP as protecting the wealthy, while Republicans will use them to say Democrats are tax-and-spend defenders of big government.

Sen. Jon Tester, D-Mont., announced that he would vote against both bills. “They are gimmicks designed more for political posturing rather than what Congress really ought to be doing,” he said.

Economists say allowing the tax break to lapse could shave 1 percentage point off gross domestic product next year, hampering the sluggish economy.

House Speaker John Boehner, R-Ohio, and Senate Majority Leader Harry Reid, D-Nev., met Thursday as talks were under way to devise a package that could win bipartisan support.

Boehner was expected to discuss options with his rank-and-file today, possibly pushing legislation to a House vote next week.

GOP leaders have argued that they want to continue the tax break, even though some of their rank-and-file doubt that it has stimulated the economy. Boehner himself stumbled on that point Thursday – first declining to say whether the payroll tax break has worked, then saying “there’s no question” it helps the economy by putting money in workers’ pockets.

At issue is how to pay for the estimated $112 billion cost of the tax break. Republicans oppose the millionaires tax, preferring to offset the costs with spending cuts elsewhere in the budget. Failure to reach agreement would result in a tax hike on 160 million working Americans.

Because Congress also faces a year-end deadline to extend unemployment insurance and other routine tax breaks, talks have turned to bundling the payroll tax cut into a broader deal.

But the costs of the package expand when other measures are added, requiring additional offsetting revenues that would likely come from deeper spending cuts than Democrats might accept.

Democrats noted that when President George W. Bush’s tax breaks for wealthy Americans and others were approved, they were not paid for with offsetting cuts. “We want fairness, we want balance,” said Rep. Nancy Pelosi, D-Calif., the minority leader.

GOP leaders have suggested paying for the tax breaks by tapping programs that had been under consideration for cuts in deficit-reduction talks this year by the supercommittee and others.

Freezing federal employee pay, as the GOP proposed, could resurface as an option. Federal workers are already under Obama’s two-year pay freeze, which would be extended three more years under the GOP plan.

Democrats were less interested in other aspects of the GOP’s proposal, saying that cutting the federal workforce would cost needed jobs.