The refusal by congressional Republicans to impose a small income surtax on the nation's millionaires is putting the extension of an essential middle-class tax cut in jeopardy. Apparently congressional Republicans are more interested in keeping taxes low for the richest Americans than providing payroll tax relief to all wage earners.
On Thursday, in a display of partisan gridlock that has come to define this Congress, the Senate failed to extend a Social Security payroll tax holiday that is set to expire at the end of the year, meaning the average American family would see their taxes rise by about $900 starting Jan. 1. Two competing versions failed — one pushed by Democrats, the other by Republicans — with 26 Senate Republicans helping to defeat their own leadership's alternative bill. Rank-and-file House Republicans, too, are telling their leaders to let the tax cut expire.
It appears some Republicans don't want to support any added government stimulus, even in the form of a middle-class tax cut. They apparently are more interested in keeping President Barack Obama from a legislative "win" than they are bolstering the fragile economy. But that kind of game should redound against them next November, and even House Speaker John Boehner is warning his caucus members that the GOP could be accused of allowing a tax increase if the payroll tax cut expires.
During 2011, the tax holiday was an economic lifeline. According to the nonpartisan Economic Policy Institute, by reducing employee payroll taxes from 6.2 percent to 4.2 percent, the break added 0.7 percent to the nation's gross domestic product. That's significant in an economy that grew at just a 2 percent annualized rate. The tax cuts added $112 billion to Americans' disposable income, and if allowed to expire the country would lose nearly a million jobs due to the precipitous drop in spending and economic activity, according to EPI.
The plan by Senate Democrats that failed on Thursday to muster the 60 votes to overcome a filibuster would have benefited the nation's 160 million workers by slightly increasing the payroll tax cut to 3.1 percent, meaning a tax savings of about $1,500 to the average American family while providing some payroll tax relief for employers too. The plan would have been paid for by imposing a 3.25 percent surtax on individuals or couples earning more than $1 million a year starting in 2013 — impacting just 346,000 millionaire households. But congressional Republicans refuse to ask for a small sacrifice from the very households that have hugely benefited from the Bush-era tax cuts.
The alternative offered by Senate Republican leaders renewed the payroll tax holiday largely by squeezing money from the federal workforce — extending a pay freeze on federal worker salaries for an extra year, reducing the number of federal workers over time — but more than two dozen Republicans joined Democrats to stymie the bill.
House Republicans are expected to return to the issue next week. Boehner knows how it will look to voters if taxes go up for the nation's employees while millionaires' incomes are protected. He needs to get this passed.