WASHINGTON – Desperate to boost employment and their bleak poll numbers, the White House and Democrats in Congress are turning to a Republican idea for stimulating the economy: tax cuts.
With little chance of passing a bill to stimulate the economy through more government spending, some Democrats now want to give employers a break on their Social Security payroll taxes and possibly extend a break for workers.
The most prominent idea would continue and maybe expand the payroll tax cut for individuals which was enacted in December and expires at the end of the year. Some Senate Democrats also want to revive an expired payroll tax holiday for companies that hire unemployed workers.
Sen. Charles Schumer, D-N.Y., said gloomy unemployment reports are a wake-up call that the economic recovery is on shaky ground. New poll numbers also show that more and more Americans are unhappy with the way President Barack Obama and Democrats in general are handling the economy and unemployment.
Some 59 percent of adults said they disapprove of the way Obama is handling the economy and unemployment, a new high, according to an Associated Press-GfK poll. Americans are about evenly divided on which party they trust to do a better job on the economy, though Democrats have lost their edge on handling taxes, according to the poll.
Democrats are eager to turn those numbers around as they head into the 2012 election cycle. But Republicans aren't eager to help them, even if it means passing up the opportunity to enact tax cuts.
Schumer said tax cuts are not the first choice of many Democrats — some would prefer a package of spending on infrastructure and roads.
"By putting it on the table, it shows how willing we are to work with the Republicans to create jobs," he said. "It's pro-business, it's a tax cut, and many Republicans have been for it in the past."
Republicans, however, have been lukewarm to short-term cuts in Social Security taxes as a way to boost the economy. Some Democrats also oppose them out of fears they could undermine funding for Social Security.
House Speaker John Boehner, R-Ohio, called proposals to extend or expand the payroll tax cut "another little short-term gimmick." House Budget Committee Chairman Paul Ryan, R-Wis., likened the idea to a "sugar high."
Sen. Orrin Hatch, R-Utah, co-sponsored a temporary payroll tax holiday for companies that hired unemployed workers last year. However, he said he would have to see convincing evidence that it helped create jobs before supporting a new one.
"We need to make sure the payroll tax cut is not just some other stimulus gimmick," he said in an interview.
Democrats cite Republican reluctance to embrace short-term Social Security tax cuts as evidence that the GOP is looking for political gain from the poor economy.
"They believe that a weak economy is their best chance at winning the next election," said Sen. Dick Durbin, D-Ill.
Hatch called such accusations "a doggone joke" and said Democrats "are panicked."
The debate is playing out as the White House and congressional leaders try to find ways to reduce annual budget deficits as part of a deal to let the government go deeper into debt. The focus on deficit reduction is limiting what Congress can do to spur the economy in the short term. Republicans scoff at Democratic proposals to juice the economy though more government spending.
"More spending? As a solution to a debt crisis?" Senate Minority Leader Mitch McConnell, R-Ky., said Thursday. "What planet are they on?"
Congress enacted a one-year cut in the Social Security payroll tax for 2011, reducing the employee share of the tax from 6.2 percent to 4.2 percent. A worker making $50,000 in wages saves $1,000; a worker making $100,000 in wages saves $2,000. The cost for just one year: $112 billion, all added to the deficit and debt.
The tax cut was designed to boost take-home pay and consumer spending, though Obama and some economists have said much of the tax cut has been wiped out by higher fuel costs.
The White House has floated the idea of extending the tax cut, which is scheduled to expire at the end of the year. There have also been discussions about expanding it to the employer share of the tax, which is currently 6.2 percent on wages below $106,800.
AARP, the influential lobby for older Americans, has "deep concerns about any efforts to expand or extend the temporary one-year Social Security payroll tax holiday without any assurances that there is no negative impact on Social Security in the short and long-term," spokeswoman Mary Liz Burns said.
Even if Social Security is made whole with money from the general fund — as it was this year — tinkering with the payroll tax threatens the independence of the massive retirement and disability program, said Sen. Bernie Sanders, an independent from Vermont.
If Congress and the White House don't agree to extend the tax cut, millions of workers face a significant tax increase on Jan. 1.
Last year, Congress also passed a law that exempted businesses that hired people who had been unemployed for at least 60 days from paying the 6.2 percent Social Security payroll tax. The program ran from February 2010 through the end of the year. Employers could get an additional $1,000 credit if new workers stayed on the job a full year.
Schumer teamed with Hatch to sponsor the package, and Schumer would like to see it renewed.
Many Republicans questioned whether the tax holiday would lead to more hiring. The Treasury Department said that from February to October, businesses hired 10.6 million new workers who would have been eligible for the tax cut. The department, however, said it could not determine how many of those workers would have been hired without the tax break.
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