GOP split over extending payroll-tax cut

McClatchy NewspapersSeptember 9, 2011 

WASHINGTON — From presidential candidates to lawmakers and activists, Republicans stand united in their absolute opposition to any and all tax hikes, right?

Maybe not.

Some key Republican leaders reject President Barack Obama's bid to extend — and expand — the temporary "payroll tax holiday" enacted late last year, which is slated to expire this December.

Analysts, among them some high-level Republican operatives, said this contradiction left Republicans treading a thin line: They brand Obama's bid to let Bush-era tax cuts lapse for wealthy Americans as a tax hike. But they say that ending payroll tax relief, a move that would affect far more Americans, isn't one.

"It may be difficult for the Republican (congressional) leadership to let it expire," said Ron Bonjean, a GOP consultant who was a top aide to former Senate Majority Leader Trent Lott of Mississippi and former House Speaker Newt Gingrich of Georgia when they led Republican lawmakers.

"To oppose a tax cut targeting the middle class, no matter how little impact it might have, can be used as campaign fodder in the upcoming election," Bonjean told McClatchy.

Henry Aaron, an economist at the Brookings Institution research center in Washington, put the dilemma in starker terms.

"It's ridiculous to say that if you let tax rates go up on the wealthy, it's going to retard the recovery, but if you let rates go up on the mass of American workers, it's not going to retard the recovery," Aaron told McClatchy.

Obama also could face difficulty reconciling his insistence on "balanced" deficit reduction that mixes spending cuts and new "revenues" — code for increased taxes — with his plan to continue reducing revenues from payroll taxes.

The contradictory positions, analysts say, reflect larger competing goals: jolting the stalled economy vs. closing government budget deficits and, over time, reducing the debt.

The current payroll tax cut, for example, was part of a broader budget deal that Congress passed on a bipartisan vote. It reduced employees' share of the Social Security tax from 6.2 percent to 4.2 percent.

The tax decrease cost the government $110 billion in lost revenues this year. It amounts to $800 for Americans who receive the average annual wage of about $40,000.

Rep. Mick Mulvaney, a South Carolina Republican who co-wrote the "Cut, Cap and Balance" bill the House of Representatives passed last month, accused Obama of playing political games in seeking a payroll tax-relief extension instead of more fundamental changes to the tax code.

"It's not designed to solve a problem," Mulvaney said this week. "It's designed to make Republicans look bad going into the election season. Is he offering short-term political solutions? Is he trying to paint us into a corner?"

That may be the president's precise intention.

Obama upped the ante in his address to Congress late Thursday by proposing to deepen the payroll tax cut for workers, to $1,500 a year on average.

In a separate benefit for the employers that Republicans now routinely call "job creators," Obama proposed cutting in half the amount of Social Security taxes paid by companies with annual payrolls of up to $5 million. Such a payroll works out to 125 employees who make $40,000 a year.

The president all but dared Republicans to reject his plan.

"I know some of you have sworn oaths to never raise any taxes on anyone as long as you live," Obama said as House Speaker John Boehner, R-Ohio, sat expressionless behind him at the front of the chamber.

"Now is not the time to carve out an exception and raise middle-class taxes, which is why you should pass this bill right away," the president said.

Boehner declined to take the bait, but he didn't reject Obama's plan outright, a stance that counts as conciliatory in today's hyper-partisan politics.

"The proposals the president outlined tonight merit consideration," Boehner said in a statement. "We hope he gives serious consideration to our ideas as well. It's my hope that we can work together to end the uncertainty facing families and small businesses, and create a better environment for long-term economic growth and private-sector job creation."

Sen. John McCain, an Arizona Republican whom Obama defeated in the 2008 presidential election, zeroed in on his former foe's payroll tax ideas in sounding a more positive tone.

"I agree with payroll tax cuts," McCain told CNN after the speech. "We could agree on the payroll tax cuts."

However, McCain soon may find that Republicans themselves, before Obama and other Democratic leaders enter negotiations, don't agree on the tax cuts.

Some prominent Republicans, from White House aspirant Rep. Michele Bachmann of Minnesota to tea party leader Sen. Jim DeMint of South Carolina, oppose extending the payroll tax relief, dismissing it as a temporary gimmick that won't boost employment.

"These temporary cuts haven't created lasting jobs, but they have undermined the funding system for Social Security that is headed to bankruptcy," DeMint told McClatchy.

Presidential candidate Gingrich begged to differ.

"It's very hard not to keep the payroll tax cut in this economy," Gingrich said last month in a speech at the Heritage Foundation research center in Washington.

"I don't know what Republicans are going to say, but I think it's very hard to say no," Gingrich said. "We're going to end up in a position where we're going to raise taxes on the lowest-income Americans the day they go to work and make life harder for small businesses."

A recent National Journal survey of 98 GOP "political insiders," many of them top consultants and former senior officeholders, found that 41 percent of them backed an extension of payroll tax relief.

Robert Bixby, the head of the Concord Coalition, a nonpartisan Arlington, Va., group that's dedicated to balancing the federal budget, said Republicans' strongest rebuttal of Obama's plan might be to focus on congressional intent.

When Congress enacted President George W. Bush's tax cuts in 2001, Bixby said, it intended them to be permanent, including the standard 10-year sunset clause used for most laws. The payroll tax holiday put in place last December was meant to be temporary.

House Budget Committee Chairman Paul Ryan, a Wisconsin Republican, took this tack in deriding payroll tax relief as "sugar-high economics" with short-term benefits.

"Temporary tax rebates don't work to create economic growth," Ryan told The Hill newspaper. "Permanent tax changes do."

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