Dems are lukewarm on Obama's push for a payroll tax holiday

President Obama may be up for discussing extending and expanding a payroll tax holiday, but the idea is getting a lukewarm reaction from Democratic lawmakers.

There are some congressional Democrats who say that, given the sluggish state of the economy, extending a payroll tax holiday for workers and adding one for employers is one of the White House’s few options for boosting consumer spending and economic growth. 

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“The extended tax credits will help stimulate the economy, and giving tax credits to businesses will in fact help with the unemployment,” Rep. James Clyburn of South Carolina, the House’s No. 3 Democrat, said on MSNBC on Wednesday.

But other Democrats and liberals say the current payroll tax break for employees, which passed Congress in December, has not given the economy much of a spark. They also expressed concerned about what augmenting the holiday would do to both the revenue stream and Social Security, which is funded by the payroll tax.

Rep. Rob Andrews (D-N.J.), for instance, said he had seen little evidence that the holiday had been that helpful.

“So doubling down on that bet – I’m very skeptical of that,” said Andrews, who voted for the December tax deal, but said the payroll tax holiday was his least favorite part of the package.

The debate over a further payroll tax cut appears to illustrate the challenge the White House has in trying to find policies that can help the economy when efforts to reduce the deficit are front and center.

The president has credited the current payroll tax holiday – which reduced the rate for workers by two percentage points, to 4.2 percent, for a year – with helping the economy. But that tax cut, included in the deal that extended the Bush tax rates at all income levels, is also estimated to have cost roughly $112 billion.

But the White House has also seen a string of disappointing economic reports in recent weeks, including the Labor Department’s finding that the economy added only 54,000 jobs in May.

The president has said that some temporary forces – high gas prices, for example – are working against the economy. Still, the White House clearly also appears to be searching for ways to give the economy a shot of adrenaline.

“Whatever incentives we can provide for businesses to hire more people, the better off we're going to be,” Obama told ABC News this week. “And so I'll be working with leaders in both parties, hopefully, to make the right decisions for the American people.”

Meanwhile, Democrats have stressed over and over that they want to see new revenues – perhaps the elimination of certain tax credits and deductions – play a role in any deficit-reduction deal that comes out of the debt-ceiling discussions being led by Vice President Biden.

Administration officials also have reportedly broached the topic of the payroll tax in the Biden talks. But Clyburn and Rep. Chris Van Hollen (D-Md.), both participants in those meetings, have said that they believe the deficit-reduction discussions and the payroll tax are really separate issues.

Top Republicans so far have seemed more than skeptical of continued payroll tax relief, saying they believe more permanent changes to the tax code would better spur the economy and reiterating that the government needs to stay more out of the way of job creators.

“The uncertainty that's out there is not going to be overcome by, you know, another little short-term gimmick,” House Speaker John Boehner (R-Ohio) said Thursday.

Democrats question a payroll tax holiday for different reasons.

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Sen. Bernie Sanders (I-Vt.), a fervent defender of Social Security who railed against last December’s tax compromise for hours on the Senate floor, expressed concern about diverting further funds away from the entitlement program.

“I understand the need in the midst of a recession to put money in the pockets of working people, but this is not the way to do it,” Sanders told The Hill in a statement. “I thought it would be Republicans. I am disturbed to see that it’s Obama.”

And Rep. Earl Blumenauer, a member of the tax-writing House Ways and Means Committee, said he wasn’t sure it made sense to cut taxes further, given that tax revenues are at a historically low percentage of gross domestic product.

The Oregon Democrat added that he thought the payroll tax holiday was better than other tax cuts, like extending the Bush-era rates for the top income levels. But, he added, “I’m just a little concerned that we need to be looking more at the big picture.”

“People are apoplectic about the increase in the deficit,” Blumenauer said. “But the biggest increase in the deficit was extending the tax cuts. And adding to it the payroll tax this year.”

Still, Blumenauer also agreed with Rep. Bill Pascrell (D-N.J.), who was more supportive of the payroll tax idea, that extending and expanding a tax holiday was at least a more visible option than some of the tax breaks included in the stimulus package.

“People have to see it,” said Pascrell, also a Ways and Means member. “They’ve got to know it’s there.”