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Pelosi Puts The Kibosh On GOP Payroll Tax Cut Strategy

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Newscom / Tom Williams

Pelosi attacked the GOP for demanding that renewing the temporary payroll tax cut be offset, while insisting on large, permanent, unpaid for income tax cuts for wealthy Americans. But that is their demand. And in that context, Pelosi became the first member of Democratic leadership to propose paying for the cuts with funds that were previously expected to pay for wars in Iraq and Afghanistan.

"What does extending the payroll tax cut have to do with the Keystone Pipeline? What does it have to do with spectrum and the rest of that?" Pelosi asked. "We can easily go get this money out of the Overseas Contingency Fund [war savings]. Easily. Pay for that, pay for [the Medicare doc fix]. We shouldn't pay for unemployment insurance -- it's an emergency. Money's been paid into it. As money is continued to be paid into it, it evens out. So we shouldn't have to offset that. But the other two, we can just go to [war savings] and get it done. If you insist on paying for that."

In their budget plans, Republicans have recommended counting war savings toward GOP priorities, but have since claimed that repurposing war savings is a fiscal gimmick. If they balk at the idea, but still demand that the payroll tax holiday be paid for, Pelosi says Congress will find the money.

"Just say for a moment that they say, well we used [war savings] to offset our priorities, but we're not going to use it to offset your priorities," Pelosi said. "Sure, we can find some places. They know there's some places that we can cut [and] it doesn't have to be spending. It could be tax subsidies for big oil, those kinds of things. They're substantial."

Ideally, Democratic leaders and President Obama would like to deepen the payroll tax holiday, and extend it to employers -- to maximize fiscal stimulus during the election year, with the economy barely growing, and threatened by the risk of a major financial crisis in Europe. Pelosi would not characterize that as a hard Democratic demand, but she said that allowing the cut to lapse is off the table. And if the tax cut isn't deepened, Democrats will push to deepen it next year.

"You have to extend the payroll tax, because if you don't you'll have an increase in taxes for people," Pelosi said. "You can do better than that, and they should. ... Right now that's where we'd like to be. If we end up with just renewing the payroll tax cut, we will continue to make that argument."

Despite broad opposition from GOP rank-and-filers, GOP leaders have become resigned to the fact that the payroll tax cut will have to be at least extended, if not actually expanded. That basic recognition drains them of leverage to use the deadline as leverage to make unrelated partisan demands, and means they'll have to team up with Democrats to address the issue before the end of the year.

On MSNBC today, conservative Democratic Rep. Jason Altmire of Pennsylvania outlined a way for the Republicans to take the issue off the table with minimal fuss: if they agree to use the war savings to pay for renewing the payroll tax cut, Democrats will soft pedal their demand to deepen it.

"If you want to go into this overseas contingency fund which some people view as an accounting gimmick but it's going to be used for something we can look at that," Altmire said. "[I]t's $120 billion cost just to extend the current payroll tax which is why I say if you extend it beyond that you get into big numbers [and] I think that's where we're going to end up."

That wouldn't be total victory for Pelosi. But it would prevent the economy from taking another hit, and would allow Democrats to continue to draw an important distinction between the parties for voters.

"This is a moment," Pelosi said. "They want to give tax cuts to the wealthy which they say shouldn't be paid for, and should be permanent. And they don't want to extend the payroll tax [cut] for middle-income people -- but if they do, they should be paid for ... I mean, it's a stunning thing."

About The Author

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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