Party of tax cuts finds itself split over this one

  • Article by: KEVIN DIAZ , Star Tribune
  • Updated: December 10, 2011 - 7:21 PM

Minnesota House Republicans out front in payroll tax cut debate.

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U.S. Rep. John Kline

Photo: Pablo Martinez Monsivais, Associated Press

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WASHINGTON - With Christmas fast approaching, it's hard to say no to something called a "payroll tax holiday" -- part tax cut, part offer Congress can't refuse.

Boxed in by President Obama's insistence on extending the 2011 payroll tax cut for 160 million Americans, Minnesota Republicans in the U.S. House are caught in an intra-party rift that could come to a head as early as this week, when a vote is expected before the looming year-end deadline.

The temporary tax cut, which helped more than 3 million Minnesotans this year, is a major sticking point as Congress prepares to break for the holidays. It also has become a flashpoint in the broader ideological battle over taxes and spending, a key issue heading into the 2012 presidential election.

On one side are Tea Party activists such as presidential candidate Michele Bachmann, who opposes the tax holiday as a deficit-busting pelt for Obama's trophy wall -- one which she says only diverts money from Social Security.

"This is President Obama's plan of temporary gimmicks, not permanent solutions," Bachmann said in Saturday night's presidential debate in Iowa.

On the other side are House GOP leaders and their allies -- including Minnesota Republican John Kline -- who are loath to cede Obama the high ground on the GOP's traditional agenda of lowering taxes, even if they view the payroll holiday as a short-term gimmick that does little for the economy.

"In general, I like tax relief," Kline told the Star Tribune. "But having said that, not all tax relief is the same. Permanent tax relief is much better ... than temporary tax relief."

The payroll tax holiday, which temporarily reduced the rate paid by employees from 6.2 percent to 4.2 percent, saved the average Minnesota family $1,112 this year, according to Senate Democratic calculations based on census data.

The cost to the federal treasury was $108 billion. That would rise to nearly $180 billion under Obama's plan to stimulate the economy by pushing the rate even lower, to 3.1 percent. Under that scenario, the savings for the average Minnesota family is calculated at $1,724. The idea is broadly supported by Democrats.

"Families all over Minnesota are still struggling to make ends meet, and this important tax cut has helped them make mortgage payments, pay medical bills and put food on the table," said U.S. Sen. Al Franken, D-Minn.

Despite the GOP's predilection for cutting taxes, the proposed extension has been a hard sell among Republicans in the House, all the more so because of Democrats' preferred method of payment: an offsetting 10-year-long surtax of less than 2 percent on incomes over $1 million.

Senate Majority Leader Harry Reid of Nevada has tried to put the squeeze on Republicans by suggesting they are "more interested in passing tax cuts for millionaires."

But Kline, who is close to House Speaker John Boehner of Ohio, says there is a difference. "What we've had proposed to us from the White House was temporary tax relief in the form of another year's extension of the payroll tax holiday," he said. That, he noted, was supposed to be in exchange for the surtax "on whatever the president is deciding the wealthy are today. So I'm absolutely opposed to that."

'We shouldn't raise taxes'

In an echo of the GOP argument for preserving the Bush-era tax cuts that expire at the end of next year, freshman Minnesota Republican Chip Cravaack said, "I agree with the president that we shouldn't raise taxes in a recession."

But Cravaack has not said whether he considers ending the payroll tax holiday a tax increase, something that all the Republicans in the Minnesota congressional delegation have pledged to oppose, at the behest of Grover Norquist, leader of Americans for Tax Reform.

For his part, Kline minimized the pledge, saying "we pledged not to raise tax rates. That's the way most of us looked at it."

Kline, along with Minnesota Republican Erik Paulsen, is backing a GOP proposal unveiled Friday that would tie an extension of the payroll tax holiday to a basket of conservative priorities, from budget cuts to the approval of the controversial Keystone XL oil pipeline from Canada to the Gulf Coast, which Republicans say will create jobs.

Obama and Senate Democratic leaders term the pipeline project a deal-breaker. Republicans, meanwhile, have rejected the Democrats' proposal to pay for the payroll tax holiday with a tax increase on the wealthy. Two versions of the surtax plan were beaten back in the Senate on procedural votes in the past two weeks.

That puts the spotlight back on the House, where Minority Leader Nancy Pelosi of California accused Republicans on Friday of holding middle-class taxpayers "hostage" to cuts in Medicare and other mandatory spending programs.

Potential deal

Mindful of the Democrats' income-inequality arguments but still needing to round up rank-and-file Republican support, GOP leaders have combined their payroll tax holiday extension with a plan to extend long-term unemployment benefits, head off scheduled cuts to doctors who see Medicare patients, and increase Medicare premiums for wealthy seniors.

While House members review the details of that proposal, Paulsen said the debate over the payroll tax holiday "shows the need to reform our tax code to make it more simple, more fair and more competitive."

Emerging from a closed-door GOP caucus meeting Thursday, Kline said, "Republicans in the House are coming together ... It's not nearly the tough sell some people have talked about."

But some Republican opposition remains, including from Bachmann, who opposed the original tax holiday. Spokeswoman Becky Rogness said that in Bachmann's view "a perpetual state of temporary tax policies brings uncertainty to hiring and other business decisions." Bachmann's view, Rogness said, "has not changed."

Kevin Diaz is a correspondent in the Star Tribune Washington Bureau.

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