Dems Drop Details Of Payroll Tax Cut While GOP Signals Early Opposition

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Democratic sources confirm that Harry Reid will try to win GOP support for a new payroll tax holiday by shrinking the size of the overall cut, and offering Republicans a few concessions that they’ve been pushing for both publicly and behind the scenes.

But their proposal will be partially paid for by a small, temporary income surtax on millionaires, and that will be a tough sell with Republicans, according to a top Republican aide, as the GOP overwhelmingly opposes raising taxes on high-income earners.The current payroll holiday, set to lapse at the end of the year, shaves 2 percent off the 6.2 percent tax employees typically pay. Democrats will propose lowering the burden further, to 3.1 percent — half the normal rate. To reduce the cost of the bill, they will drop President Obama’s request that employees also get a 3.1 percent holiday for their payroll tax contributions.

That reduces the cost of the Dems’ legislation from $265 billion to about $180 billion.

The payfors haven’t been completely finalized, but will come from three sources. First, a surtax on income over a million dollars — likely between 1.5 and 2 percent — that automatically expires after 10 years. A GOP plan to means-test unemployment insurance and food stamps to prevent (yes) millionaires from receiving benefit under those programs. And cuts to non-health mandatory spending that had bipartisan support in the Super Committee. It will not include a separate GOP proposal to means test millionaires for Medicare.

The numbers aren’t finalized. But to put the surtax into context, Dems proposed a 5 percent millionaires surtax to pay for Obama’s entire jobs bill — one that would have raised about $445 billion over 10 years. Proportionately, it suggests Dems are looking to offset at least $133 billion of the $180 billion cost of the cut with a surtax. But unlike previous surtax proposals, this one would automatically sunset in 10 years — protecting Dems from the GOP charge that they’re trying to swap out temporary tax cuts for permanent tax increases.

A GOP leadership aide outlines early objections — cautioning that Republicans haven’t been presented with the plan yet.

“It doesn’t sound like they’ll use the Medicare means testing; [Warren] Buffett will still get a break on his Medicare,” the aide says. “And they still have the tax hike.”

ABOUT THE AUTHOR

Brian Beutler is TPM’s senior congressional reporter. Since 2009, he’s led coverage of health care reform, Wall Street reform, taxes, the GOP budget, the government shutdown fight and the debt limit fight. He can be reached at brian@talkingpointsmemo.com

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