Parties’ competing plans to extend payroll-tax cut fail

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The Senate late Thursday defeated both Republicans’ and Democrats‘ attempts to extend this year’s payroll tax cut into next year in dueling votes that signaled the nearly $1,000-per-family break may be in more peril than previously thought.

Democrats‘ proposal fell nine votes shy of the 60 needed to advance, while Republicans’ bill fared far worse, garnering just 20 votes in total, leaving it well shy of the 60-vote threshold. Most telling of all, 29 senators, including two Democrats and one independent, voted against both versions — suggesting the appetite for this particular tax break may be waning at a time when the government has run three straight years of trillion-dollar deficits.

“It’s not the way to govern a country that has the huge economic, spending and deficit issues we have right now,” said Sen. Bob Corker, a Tennessee Republican who was one of those who opposed both versions.

President Obama, who had made extension and expansion of the payroll tax cut a major part of his September jobs-stimulus proposal, blasted Republicans for refusing to accept Democrats‘ bill.

“Tonight, Senate Republicans chose to raise taxes on nearly 160 million hardworking Americans because they refused to ask a few hundred thousand millionaires and billionaires to pay their fair share,” Mr. Obama said.

During last year’s lame-duck session Congress and Mr. Obama reached a deal to cut the payroll tax from 6.1 percent down to 4.1 percent this year, as part of an agreement that also extended unemployment benefits through this year, and the 2001 and 2003 tax cuts through the end of next year.

Mr. Obama in September proposed extending the payroll tax cut through next year and reducing it further, to 3.1 percent. That would boost the average family’s cut from nearly $1,000 to about $1,500.

“That’s take-home pay, 1,500 bucks in the pocket of the average family,” said Sen. Bob Casey, the Pennsylvania Democrat who sponsored his party’s version in the Senate.

Payroll taxes go to fund Social Security. Democrats‘ bill would have taken more than $200 billion out of that fund next year. They proposed recouping that money by imposing a surtax on those making more than $1 million a year.

Republicans objected to raising taxes on some to pay for cuts for others. Their version, which only extended but didn’t expand this year’s cut, would have offset its lost revenue chiefly by slimming the size of the federal workforce, an idea taken from President Obama’s 2010 fiscal commission, headed by Erskine Bowles and Alan Simpson.

But even many Republicans objected, saying that those savings should be used not to extend tax cuts but to reduce the size of the deficit. Some in the GOP also have argued that a one-year payroll tax cut is not the right way to stimulate the economy.

Earlier in the week Republican leaders had said the vote was symbolic, and had vowed to eventually reach a deal with Democrats on a payroll tax extension that doesn’t involve tax increases on others to pay for it. But Thursday’s vote suggests that may be tougher than they had expected.

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