WASHINGTON — One provision of President Obama’s American Jobs Act agenda has Republicans in a bit of a bind — do they support an extension of the payroll tax cut to fulfill their “no new taxes” pledge, or shy away from it because it adds to the federal deficit?
Leadership in both parties say that the tax credit is needed — Democrats have insisted it on it for some time and Republican leadership agreed earlier this week, on the condition that the tax holiday is paid for. But like the party as a whole, opinions among Minnesota’s Republicans vary.
Obama’s plan would extend the one-year 2 percent payroll tax cut that the White House said gave a $1,000 tax break to the average family. He also expands the cut to 3.1 percent, which would mean $1,500 in savings per family in 2012. In Minnesota, 3.2 million people would get the tax cut at a cost of about $3.1 billion, according to White House projections.
Republican leadership proposed offsetting the tax cut’s costs by capping salaries for federal employees and imposing a means test for food stamps. The plan was a nonstarter for Democrats, and even some rank-and-file Senate Republicans, who split 20-26 on the measure in a Thursday vote, though some may have voted against the tax cut itself, not the method used to pay for it.
Democrats, meanwhile, want to pay for the payroll tax cut with a tax increase on high earners. Like every other proposed tax increase this session, Republicans have answered with a resounding no — all but one voted against that plan in the Senate last week.
The payroll tax revenue being offset here goes to the Social Security Trust Fund, and Republicans have said offsetting the cost of cutting the tax is needed to keep the trust fund viable long-term.
“Any drop in revenue resulting from a temporary reduction in the payroll tax that is not paid for will harm the Social Security Trust Fund and accelerate the program’s looming bankruptcy,” House Speaker John Boehner said Thursday.
Rep. Chip Cravaack warned of the same thing. He said he supports extending the payroll tax holiday and proposed cutting discretionary spending equal to the immediate cost of the holiday to pay for it, funneling the savings into the trust fund.
“We can have a win-win-win here,” he said.
Other Minnesota Republicans are slower to commit to the tax break.
Erik Paulsen, in a statement, said he supports “tax cuts to grow the economy and helping people who are unemployed, but how we do it and how it comes together is important — the details are important.”
John Kline’s spokesman didn’t rule out the congressman’s support, but warned: “Not all tax relief is the same.
“He remains concerned about extending this proposal and its long-term impact on the Social Security,” spokesman Troy Young said.
At least one Minnesota Republican, Michele Bachmann, has taken a hard stance against extending the holiday, saying she’ll oppose any effort to extend the holiday even though such a stance carries some political risk, the Associated Press reported last week.
Democrats spread the message
Democrats have worked to exploit that risk, arguing that it’s hypocritical for Republicans to oppose increases to high-income earners and corporations while allowing a middle-income tax holiday to end. The White House and Obama’s re-election campaign utilized Minnesotans like Minneapolis Mayor RT Rybak and Congressman Keith Ellison to spread that message last week.
Ellison accused Republicans last week of opposing the tax break because it would be seen as a victory for President Obama ahead of the 2012 elections.
“They’re so committed to [seeing Obama fail in 2012] that they’re willing to make a vast amount of Americans suffer,” Ellison said.
That perception is going to be a hard one for Republicans to shake, said Curtis Dubay, a policy analyst for the conservative Heritage Foundation. Even if Republicans oppose the tax holiday as bad policy — that it hasn’t made an impact on the unemployment rate, or that changes to the tax code should be permanent and focused on encouraging businesses to hire more employees — it’s going to be hard to shake the politics of the situation.
“When they oppose it, it looks like they are just opposing the president, when there are legitimate reason to oppose this tax cut,” he said. Politically, “it’s a hard line to walk.”
Devin Henry can be reached at email@example.com. Follow him on Twitter: @dhenry