Congress will likely pass some form of a payroll tax cut before the end of the year, but getting there has been a painful process that shows just how divided Democrats and Republicans remain—and where the fault lines lie.
In the latest go-round in Washington, the U.S. Senate on Thursday scotched two plans to extend a Social Security payroll tax cut, one proposed by Democrats and the other by Republicans. The failed votes achieved nothing more than leaving lawmakers with more negotiations ahead this month as they seek a compromise on a core component of President Barack Obama's jobs program.
The first vote to fail was a Democratic measure that in 2012 would expand the cut in payroll taxes for employees, which now stands at 4.2%, 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.
However, the Democrats proposed paying for the $265 billion tax cut by adding a 3.25% surtax on income exceeding $1 million, known as “the millionaires' surcharge,” which led Republicans and a few Democrats to join in killing the measure on a 51-49 vote, short of the 60 votes required for passage under Senate rules.
For the first time, a lone Republican, Sen. Susan Collins of Maine, voted in favor of the millionaires' surcharge. When the Republicans came forward with their proposal, a $120 billion extension of the existing 2 percentage point employee tax cut paid for with a freeze on federal workers' pay through 2015, they too were slapped down in a surprising vote that had Democrats and more than two dozen Republicans going against the plan in a 78-20 vote.
Both sides expressed frustration and pointed fingers at the other side of the aisle. Clearly, the two parties are seeking to win political favor with voters as the 2012 presidential election looms.
“Republicans proved tonight they are more interested in tax cuts for millionaires than tax cuts for the middle class,” said Senate Majority Leader Harry Reid (left), a Nevada Democrat, in a statement on Thursday. “The legislation they blocked would have put $1,500 in the pockets of the average middle-class family in America next year. The bill was fully paid for by asking millionaires to pay just over 3% on their incomes above $1 million.”
Meanwhile, Republicans say do support tax cuts for the middle class, but they disagree with Democrats on how to achieve that goal.
"I don't think there's any question that the payroll tax relief, in fact, helps the economy," said Republican House Speaker John Boehner (left) of Ohio, according to a report on Fox News. "You're allowing more Americans, frankly, every working American, to keep more of their money in their pocket. Frankly, that's a good thing."
House Republicans were scheduled to meet Friday morning to decide how to proceed on the payroll tax issues, a meeting that may shed light on divisions within the Republican party.
Read Democrats Propose to Extend, Expand Payroll Tax Cut; Republicans Scoff at AdvisorOne.com.