Senate rejects payroll tax cut extension for now

Senate Majority Leader Harry Reid of Nev., center, accompanied by, from left, Sen. Patty Murray, D-Wash., Senate Majority Whip Richard Durbin of Ill., and Sen. Charles Schumer, D-N.Y., speaks to reporters about extending the payroll tax cut, Thursday, Dec. 1, 2011, on Capitol Hill in Washington. AP Photo/Charles Dharapak

WASHINGTON - The Senate on Thursday sidetracked rival plans to extend a Social Security payroll tax cut, in dueling votes that pave the way for negotiations on a compromise on a core component of President Barack Obama's jobs program.

First, Republicans defeated Obama's plan to extend the payroll tax cut through the end of next year while also making it more generous for workers.

Minutes later, in a vote that exposed rare divisions among Senate Republicans, more than two dozen of the GOP's 47 lawmakers also voted to kill an alternative plan backed by their powerful leader, Mitch McConnell of Kentucky, to renew an existing 2 percentage point payroll tax cut.

Many Republicans and even some Democrats say the payroll tax cut hasn't worked to boost jobs and is too costly with the federal deficit requiring the government to borrow 36 cents of every dollar it spends.

The defeat of the competing plans came as House Speaker John Boehner, R-Ohio, said for the first time that renewing the payroll tax cut would boost the lagging economy, a view many in his party don't share. Boehner also promised compromise on a renewal of long-term jobless benefits through the end of 2012.

The payroll tax cuts and unemployment benefits are at the center of a costly, politically-charged year-end agenda in which Democrats seem poised to prevail in renewing a tax cut that many Republicans back only reluctantly. But Republicans are insisting — in a switch from last year — that the payroll tax cut and jobless benefits be paid for by cutting spending.

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Both parties are seeking the political high ground as next year's elections loom, with Democrats accusing Republicans of siding with the rich, and Republicans countering that Democrats were taxing small business owners who create jobs.

The first payroll tax plan to fall was a Democratic measure that was the centerpiece of Obama's jobs package announced in September. It would cut the Social Security payroll tax from 6.2 percent to 3.1 percent next year and also extend the cut to employers, with its hefty $265 billion cost paid for by slapping a 3.25 percent surtax on income exceeding $1 million.

Republicans and a handful of Democrats combined to kill the measure on a 51-49 tally that fell well short of the 60 required under Senate rules. For the first time, a Republican, Susan Collins of Maine, voted to support the millionaires' surcharge.

The White House issued a statement by Obama that accused Republicans of voting to raise taxes on 160 million people because they "refused to ask a few hundred thousand millionaires and billionaires to pay their fair share." The statement didn't mention the GOP alternative.

In a surprising result, Democrats and more than two dozen Republicans voted 78-20 to kill the $120 billion GOP alternative that would have simply extended the existing 2 percentage point payroll tax cut, financed by freezing federal workers' pay through 2015 and reducing the government bureaucracy.

"Wouldn't we be better off using the proceeds of these reductions in spending to reduce the debt and deficit," said Sen. Jerry Moran, R-Kan.

Senate Majority Leader Harry Reid said Republican opponents "insist on helping the very wealthy while turning their back on the middle class," while another member of the leadership, Sen. Charles Schumer, D-N.Y., said Republicans were in full-blown retreat just days after Sen. Jon Kyl, R-Ariz., said on "Fox News Sunday" that "the payroll tax holiday has not stimulated job creation. We don't think that is a good way to do it."

On Thursday, however, Boehner disagreed.

"I don't think there's any question that the payroll tax relief, in fact, helps the economy," Boehner said. "You're allowing more Americans, frankly, every working American, to keep more of their money in their pocket. Frankly, that's a good thing."

Meanwhile, House Republicans readied legislation of their own that aides said likely would include the tax cut extension as well as renewed benefits for long-term victims of the worst recession in decades and a painfully slow recovery.

Boehner made clear that all costs must be paid for, and said higher taxes were a non-starter.

Thursday's votes indicated there was lots of reluctance among Republicans to renew the costly payroll tax cut, which even some Democrats said hasn't much helped the economy.

"I can't find many people who even know that they're getting it, okay?" said Sen. Joe Manchin, D-W.Va., who opposed both plans. "So with that being said, we're going to double down on something that we thought should have worked that didn't work."

With unemployment hovering around 9 percent nationally, Obama urged Congress in September to renew and expand the Social Security payroll tax cut for workers that he signed a year ago, and called as well for an extension of benefits that can cover up to 99 weeks for the long-term jobless.

State unemployment insurance programs guarantees coverage for six months, but as in previous downturns, Congress approved additional benefits in 2008. Expiration of those payments would mean an average loss of $296 in weekly income for 1.8 million households in January, and a total of 6 million throughout 2012.

On the tax cut extension, Republicans prefer a simple one-year continuation of the existing law, jettisoning Obama's call to deepen the cut to 3.1 percentage points on workers' first $106,800 in earnings, while expanding it to cut in half employers' Social Security contributions for their $5 million in payroll.

To pay for the measure, Senate Republicans proposed freezing federal workers' pay through 2015 — extending a two-year-freeze recommended by Obama — and reducing the bureaucracy by 200,000 jobs through attrition.

The Democratic plan would give a worker earning $50,000 a more than $1,500 tax cut; the GOP plan would provide a $1,000 tax cut for such an earner. A two-income family making $200,000 would reap a $6,000 tax cut under the Democratic plan and a $4,000 tax cut under the GOP version.

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