The Tax the GOP Wants to Raise Is the One Obama Wants to Cut

Brewing fight over payroll tax cut shows how hard debt compromise will be

This month congressional Republicans have indicated they might be more willing to raise tax revenue in order to lower the federal budget deficit than they were during the debate to raise the debt ceiling this summer. It looked like a sign that maybe the debt ceiling "super committee"--which is supposed to come up with $1.2 trillion in spending cuts by Thanksgiving so they debt limit can be raised again--was maybe not so doomed to fail. But the Associated Press' Charles Babington reports that the one tax Republicans really want to raise is the the payroll tax--which President Obama insists must be cut next year.

Obama will give a major economic policy speech in September in which he'll lay out "fresh" ideas for cutting spending and creating jobs. But at least one of the ideas he'll float has been around a while. In a spending deal passed last year, the amount that's automatically taken out of employees' paychecks was lowered from 6.2 percent to 4.2 percent. The tax is scheduled go back up to 6.2 percent on January 1, 2012. Next month, Obama will call on Congress to keep the tax on employees at 4.2 percent and lower employers' share, too.

But Republicans now say that measure might worsen the budget deficit. Babbington writes:

Many of the same Republicans who fought hammer-and-tong to keep the George W. Bush-era income tax cuts from expiring on schedule are now saying a different "temporary" tax cut should end as planned. By their own definition, that amounts to a tax increase....

 

"It's always a net positive to let taxpayers keep more of what they earn," says Rep. Jeb Hensarling, "but not all tax relief is created equal for the purposes of helping to get the economy moving again." ...

 

The 12-month tax reduction will cost the government about $120 billion this year, and a similar amount next year if it's renewed.

 

That worries Rep. David Camp, R-Mich., chairman of the tax-writing Ways and Means Committee, and a member of the House-Senate supercommittee tasked with finding new deficit cuts. Tax reductions, "no matter how well-intended," will push the deficit higher, making the panel's task that much harder, Camp's office said.

Hensarling and Camp are both on the debt super committee.

The Washington Post's Greg Sargent points out that nearly all congressional Republicans have signed Grover Norquist's pledge not to raise taxes. And that Norquist has said failure to extend a tax cut counts as a tax increase. The New Republic's Jonathan Chait says Republicans' opposition to raising the payroll tax makes sense, because they think wealthier Americans pay too large a share of taxes. The real question, Chait says, is "whether they're willing to take the political heat for not extending it..."