Harry Reid plans to announce new terms for the payroll tax cut today, but while the overall size of the tax cut will be lower, and a few concessions will be made to chase Republican support, the bill will still be partially paid for with a surtax on millionaires.
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 employers 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.
First of all, I’m glad that the Democrats will drop the employer-side payroll tax cut. The problem with hiring has nothing to do with labor costs and everything to do with poor demand for sales. Employers are already sitting on a wad of cash, they don’t need to be given more to induce hiring. This does reduce the size of the cut in marco terms, but it removes money that would probably have been wasted anyway.
As for the pay-fors, remember that Democrats tried to pass other parts of the American Jobs Act with even smaller millionaire’s surtaxes. The infrastructure bill raised taxes on millionaires by less than 1%. Same with the state fiscal aid bill. Republicans rejected those wholesale. So I see no reason why they won’t reject these as well. It’s good politics to keep forcing a choice of tax cuts for the middle class paid for by tax increases on the rich, and to keep putting Republicans on the wrong side of public opinion on that choice. But it won’t get the extension done.
We’re rounding toward a deal for some extension only on the employee side, paid for by a couple of these ideas on mandatory spending cuts (the means testing of food stamps is preposterous, on the rest I would like to see the details) and something else other than the millionaire’s surtax. Of course, I’m not convinced that Republicans will even agree to that.