Obama seizes advantage on payroll-tax cut

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Republicans are increasingly divided over whether to extend this year’s payroll-tax cut into next year, leaving a political opening that President Obama moved to seize Monday by accusing the GOP of ignoring middle-class families’ needs and unveiling a White House countdown clock ticking off the seconds until taxes get higher.

Sensing he is winning the battle, Mr. Obama moved a step further, adding a fresh demand that Republicans also accept an extension of unemployment benefits in the tax-cut package, which he said Congress must pass before the end of the year.

“I know many Republicans have sworn an oath never to raise taxes as long as they live,” Mr. Obama said from the White House press briefing room. “How can it be that the only time there’s a catch is when it comes to raising taxes on middle-class families?”

At stake is part of the tax-cut package approved last year by the lame-duck session of Congress. That proposal extended the 2001 and 2003 tax cuts through the end of 2012, but also extended unemployment benefits and created a 2 percentage point Social Security payroll-tax “holiday,” or about one-third of the 6.2 percent FICA withholding on Americans’ paychecks.

The reduced payroll tax is worth nearly $1,000 for the average family this year, but, like the unemployment-benefits extension, it expires Dec. 31. Democrats want that holiday to continue and want to expand the payroll-tax cut to 3.1 percentage points.

Now Republicans, who usually argue for tax cuts, find themselves deeply divided.

House Speaker John A. Boehner of Ohio and Senate Minority Leader Mitch McConnell of Kentucky said their party eventually will reach an agreement to extend the tax cut. But Mr. McConnell’s deputy, Sen. Jon Kyl, argued Monday for letting the cut expire as planned at the end of this year.

“It doesn’t stimulate the economy; it doesn’t produce jobs,” the Arizona Republican said, citing economists who say a temporary tax cut of that size won’t do much to loosen business hiring.

Last week, Mr. Kyl and 26 other Senate Republicans voted against two proposals - one from Democrats and one from the GOP - that would have extended the tax cut.

The tax cut involves some complex budgeting. Payroll taxes go to fund Social Security. In order to make up for the lost revenue from the tax holiday, Congress has promised to siphon general money back over to Social Security’s trust fund to make it whole.

To raise that general revenue money, Democrats are proposing a combination of a surtax on taxpayers whose incomes exceed $1 million a year and spending cuts by denying food stamps and unemployment benefits to millionaires.

Republicans said the surtax is a non-starter, but their own counterproposal to shrink the size of government and end food stamps and unemployment benefits for millionaires garnered a meager 20 votes last week.

Senate Majority Leader Harry Reid, Nevada Democrat, said Republicans are trying “to play chicken with the economy,” but urged them to take a look at his party’s new proposal.

“Republicans dismiss this at their peril,” he said.

Many in the GOP say the deficit is so severe that tax increases or spending cuts should be used to lower the government’s record-high borrowing.

But Mr. Obama said they didn’t always feel that way.

“Over the last decade, they didn’t feel the need to pay for massive tax cuts for the wealthiest Americans, which is one of the reasons that we face such large deficits,” he said. “Indeed, when the Republicans took over the House at the beginning of this year, they explicitly changed the rules to say that tax cuts don’t have to be paid for. So forgive me a little bit of confusion when I hear folks insisting on tax cuts being paid for.”

From there, Mr. Obama moved on to another part of his $447 billion stimulus plan - the extension of unemployment benefits for about 1.3 million Americans. An extension of the benefits through 2012 would cost an estimated $44 billion, on top of about $430 billion in benefits that the jobless have collected in the past four years.

Mr. Obama said Congress must act before adjourning for the holidays, or “they’ll be leaving 1.3 million Americans out in the cold.”

“It would be a terrible mistake for Congress to go home for the holidays without extending unemployment insurance,” Mr. Obama said. “To a lot of families, this emergency insurance is the last line of defense between hardship and catastrophe.”

After concluding his brief comments, Mr. Obama stepped away from the podium as flat video screens behind him beamed a clock countdown with the message, “If Congress doesn’t act, middle class taxes increase in” and a countdown clock that started at “26 days, 9 hours, 38 minutes.”

Mr. Boehner and House Republican leaders are working on their own payroll-tax proposal, but they, too, are having trouble corralling members of their own party.

One House Republican, Rep. Jeffrey M. Landry of Louisiana, last week proposed giving taxpayers a choice: Take the tax holiday today and delay the date of eligibility for Social Security by a month, or keep your current Social Security eligibility age and forgo the tax cut.

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