Tax increase awaits if Congress doesn’t act

Posted Dec. 01, 2011, at 6:07 p.m.

WASHINGTON — If Congress doesn’t vote to extend a payroll tax cut by Dec. 31, Sen. Patty Murray warned Thursday, a family in her state of Washington with a yearly median income of $56,000 will pay an additional $1,130 in taxes next year.

Last year, Congress temporarily cut the employee’s share of payroll taxes on Social Security by 2 percentage points, to 4.2 percent.

Like most Senate Democrats, Murray wants to impose a new 3.25 percent surtax on millionaires to keep the payroll tax cut in place, preventing it from reverting back to 6.2 percent.

“This vote sets up a simple choice,” Murray said in a speech on the Senate floor. “Do you vote to extend tax cuts for middle-class families and small businesses, or do you vote to protect the wealthiest Americans from paying one penny more toward their fair share?”

After its debt-reduction supercommittee — which Murray helped lead — failed to cut the national debt last week, Congress has returned to familiar terrain: arguing over tax cuts.

Both parties want to keep the tax cuts, but with the nation facing a $15 trillion deficit, the fight is over how to pay for them. The cut is a big part of President Barack Obama’s $447 billion jobs package.

Senate Republicans are resisting the surtax on millionaires. Instead, they want to freeze the pay of federal workers through 2015 and reduce the federal work force by 10 percent. Their plan would cost an estimated $120 billion.

The Senate was expected to vote late Thursday night or early Friday. A vote has not been scheduled in the House.

Regardless of the outcome, the debate is sure to roil Capitol Hill for the remainder of the year. Unless congressional leaders reach a compromise and get an extension signed into law by Obama, taxes will effectively rise for 160 million workers and families on Jan. 1. Obama has been lobbying hard for an extension.

Murray said the proposed tax on the wealthy is the very issue that led to last week’s collapse of the supercommittee, which she co-chaired for three months.

The debate marks a role reversal of sorts for members of Congress.

When Congress extended the Bush-era tax cuts last year, many Democrats said the country couldn’t afford it, while Republicans said the cuts would pay for themselves by creating more jobs and revenue for the federal government. This time around, many Democrats aren’t talking much about the price tag, while GOP leaders have insisted that a tax cut not add to the deficit.

At a news conference on Thursday, House Speaker John Boehner of Ohio said Republicans are ready to extend the payroll tax cut but that it must be offset with spending cuts elsewhere.

“It’s important that the payroll tax cut be paid for because that money is used to fund the Social Security Trust Fund, which is already facing imminent bankruptcy,” Boehner said. He said Americans know that “we can’t get our economy moving and create jobs without dealing with Washington’s out-of-control spending.”

Democrats signaled their intent to use the issue in the 2012 elections.

The Democratic Congressional Campaign Committee, known as the DNCC, said it would launch a campaign against 30 “vulnerable” Republicans, blaming them for opposing an extension of the payroll tax cut while preserving tax breaks “for the ultra wealthy.”

The campaign is using automatic “robo-calls,” live phone calls, online advertising and an “online action center” where constituents are urged to write letters to the Republican members.

The DNCC said it is targeting the legislators because they signed a pledge circulated by conservative lobbyist Grover Norquist promising to oppose any tax increase.

“House Republicans are going to face a chilly reception from voters for trying to defend the indefensible,” said Rep. Steve Israel of New York, the chairman of the DCCC, in a statement.

Casey Bowman, a spokesman for targeted Republican Rep. Jaime Herrera Beutler, called it an example “of an out-of touch D.C. campaign group needing to do its homework,” noting that the Washington state freshman — like the president — “believes the payroll tax should be extended to help hard-working taxpayers.”

“She also supports finding a responsible way to pay for the tax-cut extensions that won’t harm job creators,” Bowman said, declining to say how Herrera Beutler would pay for the cuts.

Murray said Senate Democrats would like to lower the tax rate even more to 3.1 percent, which she said would save an average family in Washington state more than $1,700 next year.

As part of her effort to sell the plan, she put an interactive map on her Senate website showing the county-by-county impact in Washington state if Congress does not extend the tax cut.

Murray said the proposed surtax on millionaires is “not drastic,” offering an example of how it would affect those who earn $1.2 million a year: “They only owe an additional 3.25 percent on that last $200,000.”

That would amount to $6,500.

But she said that “politics seems to be getting in the way,” just as politics doomed the supercommittee.

“I am disappointed that many of the same Republicans who spent the last few months fighting tooth and nail to prevent tax increases on the richest Americans and biggest corporations are now hesitating to give average families a break,” Murray said.

“That wasn’t fair then — and it’s not fair now,” she said.

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