GOP Set to Self-Destruct Over Payroll Tax

Every blessed once in a great while, all artifice is stripped away, rhetoric collapses under the weight of its own absurdity, and we get to see things as they really are. Such will be the case later this week when the Senate tries to vote on extending the payroll-tax holiday. The Republicans will oppose it—that is to say, the Republicans will support a tax increase on working Americans. And why? Because the Democrats want to pay for it with a small surtax on the very top earners. So the choice couldn’t be more direct: which is more important, giving the middle class a tax cut or protecting those who make more than $1 million a year? Republicans are making it clear. This vote alone should destroy them.

The facts: The Social Security payroll tax comes to 12.4 percent of an employee’s salary—employers and employees each pay 6.2 percent. The money goes into the Social Security Trust Fund and finances benefits. At the end of last year, the Obama administration, in exchange for temporarily extending the Bush tax rates on all income levels, got Congress to agree to a one-year 2 percent payroll-tax holiday for employees, down to 4.2 percent. For a $50,000 earner, that meant paying $1,000 a year less in payroll taxes. It was agreed in that law that the holiday would cost the Social Security Trust Fund nothing—the depleted revenue would be replaced out of the general treasury. So the holiday adds to the general deficit but does not affect the trust fund.

The cut proved popular, or is presumed to be popular, so now, as many people predicted last year, Congress wants to extend it. Republicans of course say (as they say of everything) that it hasn’t done any good. But economists attest to its stimulative value. Two economists at the Economic Policy Institute say ending the holiday would reduce GDP by $128 billion and cost 972,000 jobs in 2012. The EPI is a liberal outfit, but Mark Zandi of Moody’s, who advised John McCain in 2008, agrees that raising the payroll tax back to where it was could cause another recession.

And besides those macroeconomic concerns, there is the simple question of money in people’s pockets as they try to tough out the economy. A thousand dollars to a $50,000 earner, or $1,500 to a $75,000 earner, isn’t nothing.

What the Senate Democrats want to do now is this. They want to increase the employee’s reduction from 2 percent to 3.1 percent (that is, to cut it in half from the normal 6.2 percent rate). And they now want, for the first time, to extend the holiday to employers as well. This is important, and it probably won’t be well explained in very many places. But the Democrats would have employers pay 3.1 percent (rather than the 6.2 percent they now pay) on the first $5 million of their payroll. Also, if employers add to their payrolls, they would pay no payroll tax on new hires. So the new bill is specifically aimed at helping the job creators. The total cost is $255 billion.

Occupy Wall Street protesters march near the New York Stock Exchange November 17, 2011 in New York. Some 1,000 protesters converged on Wall Street Thursday, and fights erupted outside the New York Stock Exchange amid a tense face-off with police. Demonstrators scuffled with men in business suits trying to push their way through the throngs on the way to work at the start of a day of protests in a show of force by the Occupy Wall Street movement. , Don Emmert / Getty Images

The Democrats want to pay for it with a 3.5 percent surtax on dollars earned over $1 million per year. In other words, if someone earns $1.3 million a year, she will pay the extra 3.5 percent only on the last $300,000 in earnings; that is, an extra $10,500 a year (bear in mind that this person takes home, after taxes, around $30,000 every two weeks). So it certainly raises the taxes of the very wealthiest. But it gives more money back to middle-class people, and it stimulates the economy, perhaps to the tune of 50,000 jobs a month, maybe even more.

Mitch McConnell unsurprisingly announced his opposition to it Monday. And yes, this is the same Mitch McConnell who said in January 2009 that a two-year suspension of the payroll tax “would put a lot of money back in the hands of businesses and in the hands of individuals,” and that “Republicans, generally speaking, from Maine to Mississippi, like tax relief.”

Well, that was then. Now three things have changed. One, the idea was a Republican one back then; now it’s a Kenyan one. That alone is enough to make it poison to them. Two, extending the holiday will help the economy at a moment when Republicans are now very clearly trying to hurt the economy. This is not even a controversial thing to say anymore, it’s so obvious. And three, now there’s a price tag on it; it has to be paid for in some way, and that way is a surtax on super-high incomes. And this above all is what the GOP cannot accept. These are the makers, not the takers, in Paul Ryan’s obscene formulation.

It’s sickening to watch them lie about this one. Arizona Sen. Jon Kyl hit two major talking points on TV over the weekend:

The problem here is that the payroll tax doesn’t go into general revenue, it supports Social Security. And you can’t keep extending the payroll-tax holiday and have a secure Social Security. That’s the first problem ...

By taxing the people who provide the jobs, you put off the day we have economic recovery and job creation in this country. And that’s precisely what the Democratic plan would do. It would hit those people, the small businesses who we all acknowledge are the ones who create the jobs coming out of economic difficulty.

Both statements are lies. The first is another one of those not-intended-to-be-factual statements for which he is renowned. The Social Security Trust Fund is not affected by the new proposal any more than it was for the original one-year holiday last year. The second statement is the usual GOP talking point on this—we’re protecting small businesses—but it’s especially lame in the context of this proposal. Don’t most small businesses have payrolls under $5 million? Of course they do. Those employers will directly benefit from this law. And businesses large or small will pay nothing on new hires.

How a party can so nakedly represent only the top 1 percent while at the same time trying to stop anything that will help the economy, and survive while doing it, is beyond me.

So the bill will cut taxes on middle-income people and on small employers. And it won’t get a single Republican vote. Maybe one—Scott Brown might have to back it. But they will block this. They will hope instead that Harry Reid eventually (before the end of the year) permits a one-year extension at the current 2 percent rate that is paid for out of the general treasury. In which case the GOP will be voting to increase the deficit! Yep, the deficit-hawk party would sooner add a couple of hundred billion to the deficit than impose a surtax on people who make more than $1 million a year. It just never ends with these people.

This is the most rancid display yet on the GOP’s part. And I think you’ll agree there is no lack of competition for that mantle. Having the stones to campaign against Obama’s “Medicare cuts” in 2010 when all they want to do is cut Medicare was up there, but this is even worse. How a party can so nakedly represent only the top 1 percent while at the same time try to stop anything that will help the economy, and survive while doing it, is just beyond me. Obama should give an Oval Office speech Wednesday night and say: “If you are an employee and make less than $1 million, or if you are an employer of any size, I am trying to give you a tax cut. If you are an employee who makes more than $1 million a year, you should write and thank your Republican senator, because the Republicans are blocking me and helping you.”

It really is that simple.

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Newsweek/Daily Beast special correspondent Michael Tomasky is also editor of Democracy: A Journal of Ideas.

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