Democrats want to see tax rates go up on the wealthy; Republicans want to see cuts in entitlement programs. But neither side is trumpeting an extension of the payroll-tax cut, which is also expected to expire at the end of the year — opening the door for the federal government to dig deeper into the pockets of 160 million workers.
Passed in 2010 and renewed last year, the payroll-tax holiday has been overshadowed by the larger “fiscal cliff” fight on Capitol Hill, where lawmakers are focused on the expiring George W. Bush-era tax cuts and the automatic spending cuts that were included in last year’s deal to raise the nation’s borrowing limit.
“It seems like it has been the one tax cut that has been ignored, and I think that has been a grave mistake,” said Chuck Marr, of the Center on Budget and Policy Priorities, adding that the break put about $1,200 a year back into the pocket of the average worker. “This is real money for working and middle-class people.”
Elaine Maag, of the Tax Policy Center, summed up the relative silence on the issue: “If a tax cut is scheduled to expire, but the focus of the debate is elsewhere, will people notice?”
Most Democratic and Republican leaders are shying away from the issue — thanks to the push to come up with a more permanent solution to the nation’s fiscal problems, as well as concerns that extending it will add to the national deficit and hurt the program that it is supposed to fund: Social Security.
The offices of House Speaker John A. Boehner and Senate Minority Leader Mitch McConnell — both Republicans — did not respond to messages seeking comment on whether they will fight to save the “holiday,” which reduced the payroll-tax rate from 6.2 percent to 4.2 percent.
At separate press conferences last week, Senate Majority Leader Harry Reid, Nevada Democrat, and House Minority Leader Nancy Pelosi, California Democrat, said that extending the break is not as important as making sure that marginal tax rates do not increase on families making less than $250,000 a year.
“It would be something that would be a backstop, but it is no substitute for real middle-income tax cuts,” Mrs. Pelosi said.
Sen. Charles E. Schumer, New York Democrat, said Thursday he considered the payroll-tax cut to be just one of a bunch of “stimulus” options, along with infrastructure spending.
Some liberal-leaning lawmakers say they are reluctant to support any tax cut that, like the payroll cut, comes directly out of the Social Security fund.
“I probably have a little more misgivings than I did a year ago about the payroll tax,” said Sen. Richard J. Durbin, Illinois Democrat. “I’d like to sever that linkage between the Treasury and Social Security trust fund, protect the Social Security trust fund’s future.”
The reluctance of Democrats on the Hill to aggressively pursue a payroll-tax extension puts them at odds with President Obama, who floated a fiscal cliff framework that kept the 2 percentage-point cut on the books through 2013 — to the tune of $110 billion.
Sen. Robert P. Casey Jr., Pennsylvania Democrat, also introduced a bill this week that couples an extension of the payroll-tax break with tax breaks for businesses that either add jobs or increase employee wages.
“The 2 percentage point payroll-tax cut has played an important role to sustain the recovery, boosting economic growth by an estimated one-half of a percentage point in 2012 alone and saving or creating some 400,000 jobs,” Mr. Casey said Thursday at a meeting of the Joint Economic Committee.
Others, though, say the break was supposed to be temporary and that Congress should focus on more permanent solutions to the nation’s fiscal problems.
“We gave it a try, and it wasn’t all it was cracked up to be, and shows that we need to move beyond short-term tax fixes and move toward an overhaul of our tax code that will create lasting economic growth, more jobs, and give our businesses the certainty they need,” said Sen. Orrin G. Hatch, Utah Republican and ranking member on the Senate Finance Committee.
In a meeting with editors and reporters of The Washington Times last month, Grover Norquist, the head of Americans for Tax Reform and creator of its no-tax-increase pledge, said the fight to extend the payroll tax is different than the fight to end the 2001 and 2003 tax cuts passed under Mr. Bush.
“It is in a different category than things that were passed whose advocates and opponents all understood the goal was to make them permanent,” said Mr. Norquist, alluding to the fact that Republicans wanted to make the Bush tax cuts permanent, but did not have the votes to do so at the time.
The AARP also has weighed in, warning that an extension of the “holiday” would “undermine confidence in Social Security and put at risk the program’s dedicated funding stream and hard-earned benefits of millions of Americans and their families.”
Democrats are, however, coalescing around the idea of extending unemployment benefits again, saying that proposal provides a bigger impact and would be cheaper than the payroll-tax cuts.