Senate Rejects Competing Payroll Tax Extension Measures

The Senate late Thursday evening shot down a pair of bills aimed at extending a payroll tax holiday for businesses and their employees through the end of next year.

Needing 60 votes to shut off debate and move to a final majority vote, a Democratic proposal to continue and expand the tax cut received just 51 votes in support. The plan would have reduced the payroll tax paid by employees from the current 4.2 percent to 3.1 percent next year (the tax rate was 6.2 percent in previous years).

Democrats proposed covering the cost of the bill by waging a 3.25 percent surtax on annual income over $1 million. Though payroll taxes paid by employers and their workers fuel the nation’s Social Security Trust Fund, Democrats argued that the millionaire tax would have replenished the lost Social Security revenue. Republicans, however, argued that the new tax would hurt small businesses and would become permanent.

In the end, only one Republican, Sen. Susan Collins (R-Maine) voted in favor of the Democratic proposal. Meanwhile, two Democrats — Sens. Joe Manchin (W.V.) and Jon Tester (Mont.), as well as Independent Sen. Bernie Sanders (Vt.), who generally caucuses with the Democrats — voted against the bill.

Prior to the vote, Manchin said he was not convinced that the offset would negate potential cuts to benefits for seniors.

“Letting Americans believe that we don’t have to pay for Social Security is wrong. It is dead wrong. It is the wrong policy, it is wrong for our seniors and it is wrong for our future, and I will not vote for it. Period.”

Tester said he thought the bills were “designed more for political posturing rather than what Congress really ought to be doing: working together to create jobs on a long-term basis, to create long-term certainty for Montana’s businesses, and to cut spending and cut our deficit.”

A counter-proposal from Senate Republicans also fell by a vote of 78-20. The measure proposed offsetting the cost of continuing the tax cut by extending a federal pay freeze by another three years. It also included provisions to shrink the size of the federal workforce by 10 percent, and means-testing federal assistance programs for wealthy Americans.

The bill’s sponsor, Sen. Dean Heller (D-Nev.), said the pay-fors would not only cover the cost of renewing the tax holiday, but would also reduce the deficit by $111 billion.

But, despite the fact that Senate Republican Leader Mitch McConnell (R-Ky.) said earlier in the week that his party would likely vote to keep the payroll tax break in place, the GOP bill went down mightily. 26 Republicans voted against it, prompting Heller to remark afterwards that he was “disappointed that my colleagues have chosen to forego a common-sense solution in order to score political points.”

President Obama, who included the payroll tax cut extension in the American Jobs Act he introduced back in September, blamed the twin failures on Republicans.

“They voted against a bill that would have not only extended the $1,000 tax cut for a typical family, but expanded that tax cut to put an extra $1,500 in their pockets next year, and given nearly six million small business owners new incentives to expand and hire. That is unacceptable…Now is not the time to put the economy and the security of the middle class at risk.”

The parties must now regroup and figure out a way to extend the tax cut before the end of the year. Though the House is tentatively scheduled to adjourn on December 8 for the Holiday break, it will likely stay in session longer. In addition to the tax cut, Congress must decide on whether to extend jobless benefits for the unemployed and to reimburse physicians who accept Medicare. Failure to pass a so-called “Doc Fix” would result in a nearly 30 percent drop in payments to doctors.