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Payroll tax cut: proposals galore but consensus eludes

Congressional lawmakers in both parties offer assurances that the break Americans now enjoy on the payroll tax will be extended before it expires Dec. 31. But getting to 'done' is proving to be another tough row to hoe.

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Many conservative lawmakers emerged from a meeting with GOP leaders Dec. 2 critical of any plan that would make up for the costs of extending the payroll tax cut with general revenue dollars. The US government now borrows about 40 cents of every dollar it spends. Shifting Social Security costs onto general revenue digs deeper deficits, requires more borrowing, and makes it less likely that the Bush-era tax cuts can be extended after Dec. 31, 2012, when they are set to expire, they say.

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“I’m honestly conflicted,” says Rep. Trent Franks (R) of Arizona. “I’ve never voted for a tax increase in my life, and certainly don’t intend to do so now. The Bush tax cuts will expire next year, and I’m hoping for some type of agreement to prevent that.”

There are some signs of bipartisan initiatives to break the gridlock.

In a surprise move, Sens. Claire McCaskill (D) of Missouri and Susan Collins (R) of Maine on Tuesday unveiled a bipartisan proposal to extend the Social Security payroll tax break for employees as part of a larger infrastructure and jobs package.

The two centrists propose paying for the plan by adding a 2 percent tax to incomes over $1 million and by ending some oil industry tax breaks. In a nod to GOP objections, Senator Collins says the plan would exempt small businesses – the “job creators” that GOP lawmakers are wary of taxing at higher rates.

In a briefing Tuesday, Collins said people tell her that “they’re frustrated that Washington cannot set aside partisan bickering long enough to agree on a realistic path forward to spur job creation and to boost our economy.”

Meanwhile, Senate Democrats are preparing to vote anew on the payroll tax cut extension – this time on a proposal by Sen. Bob Casey (D) of Pennsylvania. His plan is a scaled-back version of the Democrats' previous bill, which went down to defeat. It eliminates a proposed new tax break for employers, reducing the overall cost of the Democratic proposal from $265 billion to $185 billion. It extends for one year employees' "holiday" from the payroll tax and expands it by reducing the payroll tax obligation to 3.1 percent, down from a current 4.2 percent. If Congress fails to act, the tax jumps back to 6.2 percent.

The Casey proposal also would have a smaller surtax on incomes over $1 million. Originally, Democrats envisioned raising that tax rate by 3.24 percentage points; the Casey proposal calls for a hike of 1.9 percentage points. His plan also specifies that the surtax will expire after 10 years.

“As the clock continues to tick down, it is imperative that we come together now on a middle income tax cut,” he said, in a statement Tuesday.

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