Clock Still Ticking on Payroll Tax Cut Extension Deadline

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By Deanna C. White

The impasse between Republicans and Democrats over the proposed payroll tax cut extension grew larger Thursday, December 8. Senate Republicans blocked the latest Democratic bill designed to extend the payroll tax cut, and Republicans unveiled their own plan to lengthen the payroll tax holiday.

On Thursday, the Senate torpedoed the Democrat's latest proposal, the Middle Class Tax Cut Act of 2011, with fifty votes for and forty-eight against. Sixty votes were needed for the bill to break the gridlock. The Senate also shot down a rival Republican plan by a vote of twenty-two in favor and forty-eight against. 

The Democrat's Middle Class Tax Cut Act would have cut the tax workers pay to the Social Security retirement fund from 4.2 percent, the current threshold under the existing payroll tax cut imposed last year, to 3.1 percent.

A proposal, introduced by Senator Robert Casey (Democrat-Pennsylvania), would have reduced the size of earlier Democratic packages that were rejected by nearly one-third of Republicans. Casey's proposal would no longer include a payroll tax break for employers, a change that would have cut the size of the package from $265 billion to $185 billion, according to a statement issued by Casey on December 5.

In an effort to appease Republicans, the new Democratic proposal also scaled back an earlier proposed surtax on those making more than $1 million. The new surtax would require those making more than $1 million to pay a surtax of 1.9 percent as opposed to the 3.25 percent previously proposed.

According to Casey, under his proposal, the average family would have seen nearly $1,500 in additional take-home pay. Casey released the following statement Thursday, after the Senate blocked his legislation to extend the payroll tax cut for middle-income Americans: "I am disappointed that the Senate failed to pass my compromise proposal to ensure much-needed tax cuts for working families. My bill would have provided more take-home pay for 160 million Americans. Despite the fact that this legislation is fully paid for and includes measures that have received bipartisan support, the bill was voted down by a minority determined to protect only the wealthiest few", Casey said. "The clock continues to tick down, jeopardizing working families in Pennsylvania and across the country and threatening our economy."

On Thursday, GOP leaders also placed a new payroll tax cut extension proposal on the table that stands in sharp contrast to previous Democratic proposals. Where Democrats have advocated funding the extension through surtaxes on the wealthy and adopting bipartisan spending cuts agreed to in super committee negotiations, House Republicans would pay for the extension through a variety of changes to entitlement and social spending programs as well as a pay freeze for federal workers.

The plan also reportedly links the extension of the one-year payroll tax holiday with several Republican-leaning initiatives, including a provision to advance construction of the Keystone XL Pipeline project. The move comes just one day after President Obama warned Congress not to tie approval of the payroll tax cut extension to other measures, specifically the Keystone XL Pipeline project. The pipeline, a project Republicans have consistently pressured Obama to approve, would carry oil from Canada to the United States. In November, the Obama administration delayed a decision on the project pending further environmental review.

"Any effort to tie Keystone to the payroll tax cut, I will reject", Obama said. "Everybody should be on notice. The reason is because the payroll tax cut is something House Republicans and Senate Republicans should want to do regardless of any other issues." 

The new Republican proposal is simply the latest volley in the battle that Republicans and Democrats, including President Obama, have waged over the payroll tax cut extension ever since the congressional super committee failed to reach agreement on a deficit reduction plan. 

Without congressional action, the payroll tax cut, which was imposed last year, will expire December 31, 2011, resulting in a tax hike for an estimated 160 million Americans beginning January 1, 2012.

If the payroll tax cut expires, the amount of money workers pay into the Social Security retirement fund would revert to 6.2 percent, the threshold it was originally at before the payroll tax cut, up from its current 4.2 percent. Middle-income and lower-income Americans would be hit the hardest.

"A year ago at this time, both parties came together to cut payroll taxes for the typical American family by about $1,000. But as soon as this year ends, so does that tax cut", Obama said in a December 5 statement. "If Congress fails to renew this tax cut before then, that same family will see a tax hike of about $1,000 a year. There aren't many folks either in the middle class or those trying to get into the middle class who can afford to give up $1,000 – not right now. And that's why Congress must act."

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