Administration continues payroll-tax sell job with new study

The Obama administration is continuing to press its case for a payroll-tax extension, releasing a Wednesday report laying out the benefits state by state.

The study from Treasury’s Office of Tax Policy comes the same day that President Obama heads to Pennsylvania to make a personal appeal for the tax break, and makes the case that payroll tax breaks are especially helpful to the middle class and stimulative for the economy.

The current payroll tax holiday, which expires at year’s end, cut payroll taxes for workers from 6.2 percent to 4.2. The president and congressional Democrats have proposed lowering the payroll tax rate for workers even further in 2012, down to 3.1 percent.

The payroll tax applies to the first $106,800 of a worker’s wages in 2011, a figure that will rise to $110,100 in 2012. The Treasury report makes the case that a payroll tax cut most benefits workers making less than that amount.

“The payroll tax cut proposed in the American Jobs Act for 2012 provides relatively large benefits to workers who are most likely to spend their additional after-tax income,” the report says. “Increasing middle-class families’ disposable incomes leads to greater demand, stronger growth and job creation.”

Senate Republicans on Tuesday announced they would put forward their own method for paying for a payroll tax extension, even though not all GOP lawmakers are on board with extending the cut.

Democrats have proposed paying for their expanded payroll tax relief proposal with a surtax on millionaires, an idea Republicans have dismissed as a political stunt.

Senate Republicans have also signaled that, while they might be willing to extend the current payroll tax cut, they are unlikely to endorse the broader proposal being pushed by Democrats.

According to the Treasury study released Wednesday, the 2011 payroll tax cut provided $109 billion in tax relief to families, and the proposal for 2012 would increase that to $179 billion.

The expanded Democratic proposal also includes a payroll tax reduction for employers, with a total estimated cost of $265 billion.

Analysts have said the 2011 payroll tax gave the average family close to $1,000 in tax relief, a figure the administration said would rise to more than $1,500 under its 2012 proposal.

In its state-by-state figures, the administration’s report says that the current payroll tax holiday will help 16.7 million people in California, with a total savings of $12.6 billion. The expanded 2012 version projects to $20.7 billion in savings for California workers in 2012, the administration says.

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