The White House is standing behind its effort to slap a new surtax on millionaires in order to cover the cost of keeping alive a payroll tax cut for working Americans.
President Obama’s top economic advisor told reporters at the White House on Tuesday that offsetting the cost of extending or expanding the tax cut with a new 3.25 percent tax on annual income over $1 million would not hurt businesses looking to hire.
“The vast majority of employers would be unaffected by what was proposed to pay for the payroll tax cut extensions,” said Council of Economic Advisors Chairman Alan Krueger. “This is the right fiscal path for strengthening the economy now.”
The proposed offset would take effect on January 1, 2013. However, should Congress fail to take action by the end of this year, working individuals and families will see their taxes go up in just a little over a month from now.
Last December, President Obama agreed to reduce the payroll tax rate paid by employees from 6.2 to 4.2 percent in exchange for Republicans agreeing to help pass the nuclear START Treaty with Russia and repeal the military’s ‘Don’t Ask Don’t Tell’ policy.
Now, almost a year later, Obama is proposing increasing the tax cut to 3.1 percent, a move that he says would save the average family roughly $1,500 next year. The president has also pitched completely eliminating the tax paid by employers on any new employee they hire.
But Senate Republicans, led by Jon Kyl (R-Ariz.), have indicated that they may withhold their support when the upper chamber votes on the tax cut later this week. The GOP opposes the proposed pay-for, which Kyl said over the weekend would hurt small businesses nationwide. However, according to the Small Business Majority, less than 3 percent of small businesses owners would be impacted by the surtax.
Krueger ducked a question from a reporter about whether the White House would agree to an extension that was not fully offset.
“I don’t want to go into what might happen when the Senate still hasn’t voted,” said Krueger. “I think it’s first important that the Senate consider the legislation that is before it that does pay for this.”
“We’re not going to speculate on what might happen if Senate Republicans do not heed the call of the American people,” added White House Press Secretary Jay Carney.
GOP lawmakers are also concerned about the current fiscal state of Social Security, which is funded by the payroll taxes paid by workers and their employers. Revenue generated through the millionaire surtax would replenish the Social Security funds lost through the tax cut. But again, the proposed tax hike needs the blessing of Republicans, which appears to be a long-shot at this point.
This story was updated at 5:28 p.m.