According to multiple reports the 2% payroll tax cut for nearly every working American is once again in jeopardy. The tax cut, which accounts for about $40 income per-week for the average American, was extended in late December of 2011, but only for two months. If Congress is not able to agree on a new extension by March 1 the tax cut will expire, potentially snuffing out the economic recovery of the past few months. Unfortunately, talks between the Democrats and Republicans in Congress are not going well, and the American public could pay the price as result.
Democrats overwhelmingly favor the payroll tax cut as it favors the poor and middle-class. President Obama has consistently called for Congress to extend the tax cut throughout the year, saying he would sign the legislation as soon as it got to his desk. Senate Majority Leader Harry Reid (D-NV) similarly favors an extension.
Republicans are more divided on the measure. Some are completely opposed to the payroll tax cut, favoring instead some version of tax reform which would lower income tax rates across the board. Some Republicans believe the payroll tax cut is an economic gimmick which is only designed to help the President Obama’s re-election chances. Finally, some Republicans favor the payroll tax cut, but believe it must be paid for with spending cuts to other programs, such as those providing jobless benefits.
Some Democrats have argued that the payroll tax cut should not have to be paid for at all. The Bush tax cuts were not paid for, and Republicans have consistently rejected demands to pay for tax cuts for the wealthy in the past.
Other Democrats have attempted to compromise by passing their own “pay-for” measures in the Senate. The Democrats’ bill would pay for the payroll tax cut by placing a 1% surtax on incomes above $1 million. Other congressional Democrats have proposed paying for the payroll tax cut with the war savings from Iraq and Afghanistan.
Right now those compromises are going nowhere. Republicans reject the 1% millionaires’ tax as a tax on the “job creators.” The Republicans do not see war savings as a real “pay for” in exchange for the tax cut. Last December Republicans held out until public pressure built up forcing Speaker Boehner to accept the Senate version of the extension. It is unclear if the same pattern will emerge in the coming weeks, but if one side does not relent Americans will suddenly have about $40 less per week to spend in March.
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