Payroll tax cut: why Republicans might back Obama's plan (VIDEO)
President Obama has hit the road to lobby for his plan to extend and expand this year's payroll tax cut 'holiday.' Though concerns remain, Republicans worry that Obama is gaining traction.
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But to many conservatives, the president’s proposed new payroll tax holiday is not a net tax cut, because it requires the US Treasury to make up for the shortfall in payroll tax revenue to the Social Security Trust funds by transferring general funds there. Those general funds would have to be supplied by borrowing or, in the president's plan, tax hikes on the rich.Skip to next paragraph
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He notes that, by the Democrats' own figures, it will take 10 years for the surtax on the wealthy to recoup lost revenues from Obama's one-year extension and expansion of the payroll tax holiday. That means borrowing to cover the shortfall in the meantime.
“We’re borrowing all this money to finance an outlay to many people, including me, who have fine jobs, at a time when we’re having a hard time funding food stamps and other programs,” Senator Sessions says.
“The White House says, 'Don’t worry,' and that in 10 years we’ll collect enough money from rich people to pay for it, but it’s not good government, and we’re just digging the hole deeper,” he adds.
Some voices on the left, too, are concerned. The strength of Social Security is that it has its own funding stream – the payroll tax intended to make it immune to temporary political pressures. By meddling with that tax, Obama and Congress could be threatening Social Security’s long-term solvency, some Democrats say.
"Americans pay for one thing with our payroll tax – one – Social Security," said freshman Sen. Joseph Manchin (D) of West Virginia, in a floor speech on Thursday. "By 2037 if we don't do anything, benefits for everyone will have to be cut by 22 percent. And yet we're digging a deeper hole by destabilizing its funding with this recommendation. All in return for what? A temporary measure that has already cost nearly $120 billion and has, at best, created few, if any jobs."
Some groups on the left, typically aligned with Democrats on defending Social Security, have similar concerns.
“Everyone agrees it’s important to have more stimulus in the economy and the continuation of the payroll tax cut on employees will do it, but at a cost,” says Eric Kingston, codirector of Social Security Works, a coalition of progressive groups committed to preserving Social Security. “But the payroll tax holiday for employers is a very bad idea, because you don’t get a whole lot of stimulus from it.”
The coalition is divided on whether to support the plan proposed by the White House and Senate Democrats. “It’s a stimulus, and it’s important to the economy,” he adds. “But on the other hand, it’s the poison pill that could undermine the solvency of Social Security, if it becomes a habit.”
True, Social Security trust funds are “to be made whole by transfers from general revenue, but it’s concerning,” he says.
Meanwhile, some House conservatives are pondering whether to mount strong opposition to any GOP leadership plan to extend payroll tax breaks.
"It's clear that the Speaker and our leaders want to get this done, but the challenge from the rank-and-file is how do we get this done," says freshman Rep. James Lankford (R) of Oklahoma. "Raising taxes for one group to lower them for another is the wrong way to do tax reform."
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