GOP divisions on display over payroll tax

Top Senate Republicans on Tuesday continued to express opposition to using a millionaires surtax to fund an extension of the current payroll tax, even as one of their own proposed that sort of solution.

Sen. Susan Collins (R-Maine) released a plan on Tuesday that would use a surtax on millionaires that won't affect active business income to help fund an extension of the payroll tax cut and other economic initiatives.

Collins, the only Senate Republican to vote for a payroll tax proposal last week that included a surtax, introduced the plan with Sen. Claire McCaskill (D-Mo.).

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But Senate Minority Leader Mitch McConnell and other Republicans in the chamber said the carve-out was not enough to get them to back the surtax. GOP lawmakers have said in recent weeks that the surtax would hurt many small businesses, many of which pay taxes through the individual code.

“I am not in favor of raising taxes on working people. I do favor extending the payroll tax holiday for another year in conjunction with job-creating proposals, which we expect to be included in a final version of this that will come over from the House of Representatives,” McConnell told reporters.

House Republicans have been discussing attaching a provision to speed up approval on the Keystone XL oil sands pipeline to a payroll tax package, something McConnell suggested he could get on board with.

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“We would like to see provisions in the final package that actually create jobs, and in particular create jobs right now,” the minority leader said. “And the reason there's been a lot of discussion about the Keystone XL pipeline is because if there's any shovel-ready project in America, this is it.”

McConnell also stressed that he was speaking only for himself — a week ago he predicted, wrongly it turns out, that a majority of GOP senators would vote for a Republican plan that would extend the payroll tax cut.

Also on Tuesday, Senate Majority Leader Harry Reid (D-Nev.) said that the latest payroll tax proposal from his party would probably receive a vote on Friday.

Democrats, both in Congress and the White House, have slammed Republicans for not backing their payroll tax plans, asserting that the GOP is more concerned about tax relief for the wealthy than for the middle class.

“Yesterday, the Republicans criticized our plan, our revised plan, and they haven't even read it,” Reid said Tuesday. “If they'd taken time to read the legislation, they would have seen the basically every piece in there is bipartisan in nature, including now the tax on millionaires.”

Reid also said that he expected the Senate would deal with the payroll tax cut and several other issues — including unemployment benefits and government spending bills — before calling it a year.

The Senate Democrats unveiled their slimmed-down payroll tax proposal on Monday. It would lower the payroll tax rate for workers, at 4.2 percent in 2011, to 3.1 percent next year. In 2010, workers paid a 6.2 percent rate.

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The proposal does not extend payroll tax relief to employers, as previous Democratic plans had.

House GOP leaders, meanwhile, have urged their rank and file to get on board with a payroll tax cut extension. But they have run into some skepticism, and are still trying to formulate their plan for dealing with the issue. The House GOP conference is set to discuss the payroll tax in a Wednesday morning meeting.

The bill introduced by Collins and McCaskill would continue the current 4.2 percent payroll tax rate for workers for another year, and extend that same rate to employers on their first $10 million of payroll.

The two senators said Tuesday that they hoped their measure would be seen as a fully fleshed-out alternative, should the gridlock over the payroll tax and other year-end initiatives continue.

“I don’t want to give any impression that the leadership has endorsed this effort,” Collins said Tuesday. “But my hope is that when all the other alternatives are exhausted, that people will do the right thing and turn to our proposal.”