House Dems buck GOP on call to pay for payroll package with spending cuts

House Democratic leaders are increasingly arguing that the next payroll tax package should not be fully paid for with spending cuts.

Top Democrats say offsetting the entire cost of a yearlong payroll tax package, as Republicans have demanded, is a bad idea in a fragile economy.

"When in our history have we had to pay for unemployment before?" said Rep. John Larson (Conn.), chairman of the Democratic Caucus. "This is a crisis."

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GOP leaders have insisted that the payroll tax package, which includes an extension of emergency unemployment benefits and a pay hike for doctors treating seniors, be wholly paid for with spending cuts elsewhere in the budget. 

But Democratic leaders this week are amplifying their push to use borrowed funds to cover at least the unemployment insurance (UI) provision.

"We've always treated emergency unemployment benefits just as it implies — as an emergency," Rep. Xavier Becerra (Calif.), vice chairman of the House Democratic Caucus, told reporters in the Capitol Wednesday. "I don't believe that most Americans think that Americans who lost their jobs through no fault of their own, and are therefore seeking a hand-up through unemployment benefits, should have to find that other Americans will suffer the consequence by having to pay [for] that."

The remarks echo those of House Minority Leader Nancy Pelosi (D-Calif.), who a day earlier had warned that offsetting the UI provision and payroll-tax holiday extension would limit the stimulative effects of the package, thereby threatening the economy just as it is showing signs of some stability.

"UI and [payroll] tax cuts are important because they're received by people who need the money, will spend it immediately, inject demand into the economy and create jobs," Pelosi said Tuesday during an interview with Politico. "There is a macroeconomic purpose to those tax cuts for 160 million people. ... To the extent that you start offsetting, you start weakening the macroeconomic impact."

Behind Pelosi, Democrats seem to be coalescing around the idea that the payroll tax holiday should be paid for by hiking taxes on the wealthy — or not at all. They note that Republicans have never insisted that the Bush-era tax cuts be offset with changes elsewhere in the budget. Indeed, GOP leaders in 2010 backed an $858 billion package extending the Bush tax cuts through 2012. None of it was paid for.

"I don't think you should have to pay for it [the payroll tax cut], because you don't pay for tax cuts for the wealthiest people in America, why are you paying for it for [the middle class]?" Pelosi said.

Republicans have defended their decision not to pay for the Bush tax cuts, arguing that tax cuts don't require offsets.

"You do need to offset the cost of increased spending," Sen. Jon Kyl (Ariz.), the Republican whip, said in the midst of the 2010 debate over extending the Bush tax rates. "But you should never have to offset the cost of a deliberate decision to reduce tax rates."

Still, GOP leaders have approached the Democrats' payroll tax cuts much differently, initially dismissing the move as "sugar-high economics" before reluctantly endorsing the popular provision late last year — as long as it's offset with spending cuts elsewhere. The waffling has provided Democrats with ammunition to go after Republicans for playing politics with the issue.

"The Republicans have taken both sides of this issue," said Becerra, a member of the panel charged with ironing out a deal on the payroll tax package. "They pay for some things [and] they don't want to pay for others. They never paid for the Bush tax cuts, yet they say that we must pay for the tax cuts that go to middle income Americans. So there's a great discord in terms of what they say they want."

GOP presidential hopeful Mitt Romney fueled the debate this week when he conceded that, despite his enormous wealth, he pays an effective tax rate of roughly 15 percent — lower than most working Americans. Democrats pounced on the news as evidence that Congress should even the playing field by allowing the Bush tax cuts to expire for the wealthy.

"Is it fair to continue to protect the nation's wealthiest 1 percent and have those amongst us — especially those in the middle class who are feeling the squeeze — have to bear the burden of two wars that are unpaid for, to pay for tax cuts to the wealthy?" Larson asked Wednesday. "There's a fairer way to do this."

Given the tough economy, Larson added, it should be "a time of shared sacrifice."

Still other Democrats noted the political difficulties of such a move. Rep. Steny Hoyer (Md.), the Democratic whip, said allowing the tax cuts on the wealthy to expire would be "the wisest way to proceed" on the payroll tax package. But he was quick to note that such a plan has little chance of passing Congress this year.

"In the Senate, they don't have a majority for that proposition. Sen. [Harry] Reid put that on the floor a number of times and couldn't get 60 votes to move it forward," Hoyer told reporters Tuesday.

Hoyer predicted that — somehow, someway — Congress would pass the payroll tax package next month. "Obviously, whatever we have to do has to be paid for," he added.

Lawmakers are running out of time. The current payroll tax package expires at the end of February.