Senate Republicans backed away from earlier resistance to extending the payroll-tax cut Wednesday, the same day President Obama warned that failing to provide the tax relief would deal "a massive blow to the economy."
However, Republicans remain adamantly opposed to Mr. Obama's plan to pay for the extension of the payroll-tax cut with a millionaire surtax. Late Wednesday, GOP senators offered their own proposal to pay for a one-year extension by targeting millionaires in other ways and shrinking government, setting up a showdown in the coming weeks over how to pay for the tax break.
With unemployment at record levels, Republicans have been skeptical about whether last year's payroll-tax cut had any real impact on the economy. But Senate Minority Leader Mitch McConnell, Kentucky Republican, said Wednesday that his party was putting aside its misgivings and supporting the extension because middle-class workers facing tough times deserve it.
"We know it will give some relief to struggling workers out there who continue to need it, nearly three years into this presidency," Mr. McConnell said.
An initial payroll-tax cut, passed late last year, is set to expire at the end of December. Mr. Obama has pressed for extending the current tax cut of 2 percent, under which workers now pay 4.2 percent of their paychecks to the Social Security trust fund. The president also wants to increase the size of the cut so that workers would pay only 3.1 percent of their wages, up to $106,800.
Late Wednesday, Mr. McConnell unveiled his party's proposal, which the GOP claims would not only offset the lost revenue from the extended tax relief but also reduce the deficit by $111 billion.
In an apparent attempt to blunt Democrats' message that Republicans are protecting millionaires, the proposal would deny unemployment insurance and food stamps to anyone who earns more than $1 million a year. And anyone with an adjusted gross income of at least $1 million would be required to pay full premiums for Medicare parts B and D.
More than 2,360 millionaires received more than $20.8 million in unemployment compensation in 2009, Republicans said.
Costs also would be offset by reducing the size of the federal workforce through attrition and extending the current federal employee pay freeze for another three years — an idea borrowed from the bipartisan Simpson-Bowles deficit commission. The GOP plan includes the Buffett Rule Act, which would allow taxpayers to voluntarily donate any amount to the Treasury Department on their tax returns for the purpose of paying down the national debt.
Senate Majority Leader Harry Reid's office immediately opposed the proposal, saying that the Democratic plan "would put more money in the pockets of middle-class families and create more jobs."
"The Republican proposal cannot pass the Senate as it stands," said Adam Jentleson, a spokesman for the Nevada Democrat. "But now that Republicans have reversed their position on this middle-class tax cut, we look forward to working with them to negotiate a consensus solution."
Earlier Wednesday, Mr. Obama pressed Congress to pass the payroll-tax break at a campaign-style rally in Scranton, Pa., a working-class area and the birthplace of Vice President Joseph R. Biden and Democratic Sen. Robert P. Casey Jr., the Senate author of the payroll-tax cut when it passed last year.
Before a crowd at Scranton High School, he put the alternatives in stark relief: Republicans must choose between lower taxes for the wealthy or a payroll-tax cut that would help average Americans.
"If Congress doesn't act to extend this tax cut, then you're going to see your taxes go up by $1,000," Mr. Obama said. "It would also be a massive blow to the economy. We can't let this tax cut lapse now."
For a person making $50,000 a year, passing the tax-cut extension and Mr. Obama's expansion would mean an extra $1,500, while failing to extend the tax cut would increase the tax burden by $1,000. If Congress does not act by the end of December, 160 million Americans would see their taxes increase.
Mr. Obama laced his remarks with references to Christmas and the holiday spirit.
"Send your senators a message," he said. "Tell them, 'Don't be a Grinch. Don't vote to raise taxes on average Americans during the holidays.'"
Before his speech, Mr. Obama stopped by the home of Donna and Patrick Festa Sr., where he discussed the family's difficulty in planning to pay college tuition for their two children, now in high school.
Later in introducing Mr. Obama to the Scranton High School crowd, Mrs. Festa, a graphic designer, said she and her husband, a third-grade teacher, had expressed their concerns to the president about the economic inequality in the nation right now. "We support our president's efforts to create family-sustaining jobs," she said.
Pennsylvania is critical to Mr. Obama's re-election chances next year and the northeast part of the state provided him in 2008 with his strongest margin outside of Philadelphia.
While Mr. Obama pressed for a payroll tax cut, the speech was peppered with political attacks and contrasts between his agenda and vision for America and what he viewed as that of the Republicans. Several times during the speech, he blasted Republicans for rejecting his calls to pay for the tax-cut expansion with a surtax on millionaires.
"Are you going to cut taxes for the middle class and those who are trying to get into the middle class or are you going to protect massive tax breaks for millionaires and billionaires?" he said. "Are you going to ask a few hundred thousand people who have done very, very well to do their fair share or are you going to raise taxes for hundreds of millions of people across the country?"
Later Wednesday evening, Mr. Obama planned to travel to donor-rich New York to raise money for his campaign.
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