Democrats Propose to Extend, Expand Payroll Tax Cut; Republicans Scoff

Tax cut would cut employer taxes to 3.1% from 6.2% and expand employees’ tax break to 3.1% from 2%

Senate Majority Leader Harry Reid. (Photo: AP) Senate Majority Leader Harry Reid. (Photo: AP)

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Senate Democrats on Monday urged Congress to extend and expand the tax cuts now in place for employers and employees, but Republicans countered that the tax holiday should end because it isn’t creating jobs or stimulating the economy.

Democratic Sens. Harry Reid of Nevada, Charles Schumer of New York and Bob Casey of Pennsylvania unveiled the legislation in a media call, saying that it would stop the tax hike from hitting middle-class families when it expires at the end of December.

Under the legislation, proposed by Casey, the 2% payroll tax cut for employees would be expanded to a 3.1% break for one year. The legislation would also cut in half, to 3.1% from 6.2%, the employer-side Social Security payroll taxes. According to Senate Majority Leader Reid, the employer cut would not harm the Social Security Trust Fund.

Senate Majority Leader Harry Reid (Photo: AP)“The payroll tax cut saved the average middle-class family over $1,000 last year,” said Reid (left). “Sen. Casey’s bill would save the average family about $1,500 in taxes next year and save businesses as well.”

However, Republicans are hesitant to extend the payroll tax holiday because they question its value for either job creation or economic stimulus.

“The payroll tax holiday has not stimulated job creation,” said Republican Sen. Jon Kyl of Arizona while on “Fox News Sunday.” “We don’t think that’s a good way to do it.”

Reid noted that just before the media call, Republican Sen. Mitch McConnell of Kentucky while on the Senate floor also spoke out against the payroll tax cut. McConnell supported the payroll tax cut in 2009 but now opposes it for the political aim of bringing down President Barack Obama, Reid charged.

“Republicans are doing this less than a week after blocking the supercommittee,” Reid said. “It’s hard to imagine Republicans being more out of step with the American middle class than they are now.”

The Senate Democrats claimed that economists of all political stripes have called the tax cut critical for America’s economic growth and warned that letting it lapse could push the country back into a recession.

Monday’s announcement follows on the heels of the congressional supercommittee’s failure last week to reach a budget deficit deal.

At that time, David Kelly, chief market strategist for J.P. Morgan Funds, said that a number of temporary tax breaks, including the 2% payroll tax cut, are due to expire at the end of this year and could cause economic damage. "If they do," he said, "and discretionary spending is held to the caps agreed to in August, there is a significant risk that the economy will suffer too much 'fiscal drag' entering a new year, undercutting some small signs of momentum which have emerged in recent weeks."

Read Deficit Supercommittee Fails to Make Deal at AdvisorOne.com

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