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

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.”

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