Senator Bob Casey moves to extend payroll tax cut

Posted: December 05, 2012

WASHINGTON - Grabbing hold of an issue that affects paychecks across the country, U.S. Sen. Bob Casey will begin a push this week to extend a payroll tax cut scheduled to expire at the end of the year.

The Pennsylvania Democrat is about to release a fact sheet showing that extending the cut would spare 122 million households from a tax hike next year. He plans to put the numbers front and center at a Thursday hearing on the fiscal cliff, hoping to raise the profile of an issue that has received scant attention.

Calling the two-year-old tax break a "proven strategy that we know creates jobs," Casey argued in an interview Monday that keeping the payroll tax rate at 4.2 percent instead of 6.2 for another year would put money into workers' pockets, encourage consumer spending, and boost the economy.

More than half the benefits of the cut go to those earning less than $100,000, the fact sheet says, underscoring the help it provides middle-class workers, Casey said.

"They're the ones that drive the consumer spending that keeps the economy growing," he said, adding that "it makes good sense" to continue the tax break.

The two-page fact sheet, a copy of which was obtained by The Inquirer, cites an analysis by the forecasting firm Macroeconomic Advisers, which found that 400,000 jobs were saved or created in 2012 as a result of the cut. The sheet was compiled by staff of the Joint Economic Committee, which Casey chairs.

Extending the tax break, though, will reduce federal revenues by $110 billion to $120 billion, adding to the deficit and government borrowing. The idea also worries some Democrats and advocates for retirees because payroll taxes fund Social Security, though the law has required that the lost funds be replaced by other federal dollars.

A family with Pennsylvania's median income, $52,948, would save $1,059 if the cut remains in place, the fact sheet said. In New Jersey, where the median is $71,277, the savings would be $1,426. Nationwide, 77 percent of tax filers will pay more if the payroll cut expires, losing $721 each on average, according to a separate estimate from the nonpartisan Tax Policy Center. People who make more save more in terms of dollars, though not as a percentage of income.

Republicans, though, have questioned the payroll tax cut's economic benefits.

"Democrats and Republicans alike have said it's time to end what was supposed to be a temporary tax policy. We gave it a try and it wasn't all it was cracked up to be," said a statement Monday from Sen. Orrin Hatch of Utah, the ranking Republican on the Finance Committee.

Casey's push on the payroll tax comes as lawmakers stake out positions on a range of issues tied to the fiscal cliff. He and 41 other senators - mostly Democrats, including New Jersey's Robert Menendez and Frank J. Lautenberg, and Delaware's Christopher A. Coons - signed a letter Monday calling for Senate leaders to preserve extended unemployment benefits, also scheduled to expire.

In a conference call with reporters, Sen. Pat Toomey (R., Pa.), a leading fiscal conservative, acknowledged that taxes are likely to rise, due to President Obama's reelection, but reiterated his call for "pro-growth" policies, such as closing tax loopholes, rather than raising tax rates on income or dividends.

Toomey called for "modest structural changes" in Medicare and Medicaid, saying gradual changes now would save hundreds of billions of dollars over time. He said he would consider supporting slowly raising the Medicare eligibility age from 65 if the move were part of a bigger deficit-reduction package. That stance was similar to a proposal House GOP leaders sent Monday to the White House.

"The opportunity of this moment is, we don't have to slash and burn anything," Toomey said.

The payroll tax has received relatively little attention in the cliff talks. Prominent members of both parties have called for simply letting it expire.

"I think it should expire, and will," U.S. Rep. Robert E. Andrews (D., N.J.) said last week. "That's money that goes into the Social Security trust fund."

Toomey said he would consider extending the break, but also said, "I am concerned about depleting our designated funding for Social Security."

AARP and other Social Security watchdogs have raised similar issues.

"Social Security has exactly the same amount of dollars it would have had if the cut had not occurred," said Roberton Williams, a senior fellow at the Tax Policy Center. The fear, though, is that severing the link between payroll taxes and the popular program "will weaken political support for Social Security."

Casey said that by spurring job growth - thus increasing the number of people paying payroll taxes - the tax break added $1 billion extra last year to Social Security funding.

The White House included an extension of the payroll tax cut in its initial offer to Republicans in fiscal cliff talks, but it's unclear if that was a genuine goal or a bargaining chit. Administration officials have been noncommittal when discussing the issue.

Casey plans to push for it when he chairs a hearing of the Joint Economic Committee.

"The payroll tax cut helped everyone who had a job, basically," said Williams, of the Tax Policy Center. "The amount you got was a function of the amount of earnings you had."

The middle 20 percent of tax filers would save $672 if the break was extended, while the top tier would save $1,950, according to the center. Because Social Security payroll taxes are capped, the tax benefits max out at $2,200.

Casey said he hopes to keep the tax cut alive or at least elevate its place in the debate.

"We're now getting to the more urgent work of getting an agreement," he said. "I think this can be a big part of that."


Contact Jonathan Tamari at jtamari@phillynews.com or follow on Twitter @JonathanTamari. Read his blog 'Capitol Inq' at www.philly.com/CapitolInq.

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