No zeal for extending payroll-tax cut

Posted: June 28, 2012

Four months after reaching a bipartisan agreement to extend a payroll-tax cut through 2012, U.S. lawmakers and President Obama are showing little fervor for continuing the break, which puts about $1,000 a year in an average worker's pocket.

House Republicans don't plan to include it in a bill they want to pass next month that would extend Bush-era income-tax breaks expiring at the end of the year. In his speeches, Obama praises the payroll provision without proposing to keep it.

"I doubt that there is any enthusiasm for taking that issue up prior to the end of the year," said Rep. Tom Price of Georgia, chairman of the Republican Policy Committee.

The collective shrug for a policy designed to encourage consumer spending and growth comes even as the U.S. economy shows signs of continuing weakness. The unemployment rate has declined 0.1 percentage point since February, and gross domestic product increased 1.9 percent in the first quarter.

Democrats and Republicans have similar - and differing - reasons for their reluctance. Leaders in both parties worry that the payroll-tax cut could eventually undermine the Social Security trust fund. Republicans say the tax break hasn't done much good.

"No one has shown anybody," said Rep. Patrick Tiberi (R., Ohio), a member of the Ways and Means Committee, "that the payroll-tax [cut] has helped the economy."

House Republicans say they will vote in July to extend all of the expiring tax cuts first enacted in 2001 and 2003, preventing a year-end increase in tax rates for income, capital gains, dividends, and estates. Those rates, Tiberi said, are the ones constituents mention to him when they cite uncertain tax policy as a reason for delaying investment decisions.

Obama rallied public support and put pressure on Congress to extend the payroll-tax cut through 2012. He hasn't sought another extension.

Though the tax cut didn't lead to economic growth, letting it lapse would hurt taxpayers who were benefiting, said J.D. Foster, a senior fellow at the Heritage Foundation, a Washington group that favors limited government. He said Obama was correct when he said that early 2012 was a terrible time to raise taxes.

"If Republicans are paying attention, they're going to realize that all of those families, a lot of them, vote," Foster said. The GOP "might want to think about not raising taxes on middle-class families."

The tax, dedicated to Social Security, applies only to the first $110,100 of wages in 2012. The United States kept Social Security's trust fund whole by borrowing from the general fund, which runs a deficit.

Some Democrats may be reluctant to support payroll-tax-cut extensions because of concerns about using the tax dedicated to Social Security as "kind of an ATM machine," said Rep. Jan Schakowsky (D., Ill.), cochairwoman of Obama's presidential campaign.

"There are some who worry that if they were to become a permanent fixture," she said, "that could damage the Social Security trust fund."

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