Senate Democrats shrink payroll tax cut to lure GOP support

Senate Democrats have shrunk a proposal to cut payroll taxes in hopes of luring Republican votes for the centerpiece of President Obama’s jobs plan.

Democrats have reduced the $265 billion extension and expansion of the payroll tax cut, which failed last week in a vote largely along party lines, to a new proposal totaling $180 billion, according to a Democratic official familiar with the plan.

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The new proposal will extend and expand the payroll tax cut for workers, giving average families an extra $1,500 next year. Democrats have “reluctantly” decided to cut the payroll tax break for employers because of Republican concerns over its cost, said the official.
 
If it passes, workers would see their payroll taxes drop another one and a tenth percentage points, cutting the tax by 3.1 percentage points compared to 2010.
 
Encouraged by Sen. Susan Collins’s (R-Maine) vote for the Democratic payroll tax proposal last week, Democrats will keep their plan to pay for it by taxing income over a million dollars. In a concession to Republicans, however, Democrats have decided to shrink the surtax on millionaires’ income from 3.25 percent to less than 2 percent.
 
Democrats will also amend the millionaires’ surtax to make it sunset after 10 years. Senate Republicans last week criticized the original pay-for because it would have established a permanent tax increase to pay for a temporary cut in payroll taxes. 
 
Senate Majority Leader Harry Reid (D-Nev.) announced the new proposal on Monday afternoon and called on Republicans to compromise.
 
“Republicans need to be prepared to meet us partway. We’re offering a serious proposal with meaningful concessions, including spending cuts to which Republicans have already agreed,” Reid said on the Senate floor.
 
“The scaled-back temporary tax on the richest Americans, a group with an average income of $3 million a year, is also a sincere attempt to get Republicans on board to pass what they say they want to do.” 
 
A House GOP leadership aide said the new proposal remains a tool for Democrats to attack Republicans.
 
"This proposal moves in the right direction, but the inclusion of the small business tax hike is a ‘poison pill’ that shows Senate Democrats are aiming to fail – so President Obama can attack Republicans," the aide said.

House Republicans are working on their own proposal to extend the tax cut along with unemployment benefits. They are opposed to raising taxes on the wealthy to pay for those items, however.
 
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The reduced millionaires’ tax increase will not generate enough revenue to cover the $180 billion cost of the package. Democrats have also included about $40 billion in mandatory spending cuts that were under discussion last month by the deficit-reduction supercommittee, according to the Democratic official.
 
The Democratic proposal would also cut off food stamps and unemployment benefits for people earning over a million dollars, a policy change that was included in the payroll tax legislation offered last week by Senate Republican Leader Mitch McConnell (R-Ky.).
 
Sen. Bob Casey (D-Pa.), chairman of the Joint Economic Committee, will release the details of the plan later Monday afternoon.
 
A Senate Republican leadership aide said McConnell had not seen the Democratic tax legislation as of 2 p.m. Monday.
 
— This story was last updated at 2:48 p.m.

— Russell Berman contributed to this story.