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The Hill

Ignoring Liberal Dems, Obama Endorses Longer Payroll-Tax Holiday Through 2012

Mike Lillis

President Obama on Wednesday reiterated his push to extend an existing payroll-tax holiday through 2012 – a move denounced by liberal Democrats who fear the reduction in revenues will undermine Social Security.

“I think that it makes perfect sense for us to take a look at, can we extend the payroll tax, for example, an additional year,” Obama said during a lengthy press conference at the White House.

The president said that strategy “puts money in people’s pockets at a time when they’re still struggling to dig themselves out of this recession."

The remarks ignore the warnings from many liberal Democrats, who have argued for months that cutting the payroll tax will drain Social Security coffers and threaten seniors' benefits.

Republicans backed the tax break when it was included in a December deal, but House Budget Committee Chairman Paul Ryan (R-Wis.) more recently has criticized it as a “sugar high” for the economy.

On Friday, Democratic Reps. Lloyd Doggett (Texas), Ted Deutch (Fla.) and Mark Critz (Penn.) sent a letter to all House Democrats saying the proposed payroll-tax extension “should trouble all who care about preserving” the funding stream for Social Security.

“Social Security’s popularity comes from the direct contributions of American workers, who pay into the system now and benefit when they retire or become disabled,” the lawmakers wrote. “Unless and until faith in Social Security has been restored to the American people through long-range solvency, short-sighted cuts to the program’s revenue stream must not be part of any debt ceiling or budget deal.”

The letter is also being distributed to select House Republicans, Deutch spokeswoman Ashley Mushnick said Wednesday. The Democrats are also readying a similar letter to send to Obama.


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In December, the White House and Senate Republicans carved out a deal to cut workers' payroll taxes from 6.2 percent to 4.2 percent through 2011 – part of a larger package to extend the George W. Bush-era tax rates for all taxpayers.

The provision angered many liberal Democrats, however, who warned it set a dangerous precedent because taxes are easier to cut than they are to restore. The concern at the time was that anti-tax conservatives would lead the charge to extend the tax break beyond this year. Instead, Obama has adopted that position.

Sen. Charles Schumer (D-N.Y.) is also urging a one-year extension to the payroll tax holiday.

While the cut is just two percentage points – from 6.2 percent to 4.2 percent – it represents a real payroll tax reduction of 32 percent. For instance, a worker currently earning $100,000 should have paid $6,200 in payroll taxes for 2010 wages, but will pay only $4,200 for earnings this year.

The current tax holiday does not apply to employers, who continue to pay the 6.2 percent rate.

The Congressional Budget Office estimates the cut will reduce federal revenues by $112 billion over the next two years. Because the tax package is not offset by changes elsewhere in the budget, the government will have to borrow to fill that hole in the Social Security trust fund.

The president on Wednesday also endorsed “other tax breaks for business investment” he says would stimulate the economy and create “more jobs right now.” The White House has already floated the idea of extending the payroll tax holiday to employers, though it’s unclear whether Obama was referring to that strategy Wednesday.

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