GOP shifts battle tactics in war for tax supremacy with Obama, Democrats

Senate Republicans will offer a new proposal to extend the payroll tax holiday as they battle with Democrats for supremacy on taxes. 

Republicans earlier this year dismissed an extension of the cut as a “sugar high” that would do little to create jobs, but Senate Minority Leader Mitch McConnell (R-Ky.) announced a shift in strategy on Tuesday, saying he would offer the GOP offset for extending the tax holiday.

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“I think at the end of the day there’s a lot of sentiment in our conference, clearly a majority sentiment, for continuing the payroll tax relief that we enacted a year ago in these tough times,” McConnell said. “But we believe with this kind of deficit, we ought to pay for it.”

McConnell’s announcement comes after President Obama and his party sought to seize political control of an issue where the GOP has long held an advantage. 

Senate Democrats this week unveiled an expanded package of $265 billion in payroll tax relief that would be paid for with a new surtax on millionaires opposed by Republicans that could get a procedural vote as early as this week. Democrats believe they have an advantage, given polls that show voters favor higher taxes on the wealthy.

“The only place in America that people don’t want a fair system are the Republicans here in the Senate,” Senate Majority Leader Harry Reid (D-Nev.) said Tuesday. “Republicans outside this Capitol think the rich should share some of the burdens we have in our country today.”

Obama has used the bully pulpit to pressure Republicans, and will do so again Wednesday in the swing-state of Pennsylvania. The president already has slammed Republicans for holding up an extension of the tax cut, which he says breaks with the pledge most GOP lawmakers have taken not to raise taxes. 

McConnell and other Republican senators say Reid’s plan to pay for the tax break with a surtax on the rich is cheap political theater. 

The Kentucky Republican said a surtax on millionaires would hurt small businesses, and that the payroll tax cut should “be paid for in an acceptable way that does not adversely impact job creation at a time when we are either in a recession or look very much like we’re in a recession.”

GOP lawmakers also suggested that, while many of them would be open to continuing the payroll tax cut currently on the books, there was little appetite on their side of the aisle for the expanded break proposed by Obama in his September jobs bill. 

And even with the new GOP proposal expected, Republicans are not totally united on whether to extend the payroll tax cut, and how or even whether to pay for it.

The GOP move on payroll taxes comes just days after Sen. Jon Kyl of Arizona, the No. 2 Republican in the chamber, said that the current payroll tax cut had done little to stimulate the economy.

Kyl’s comments were consistent with the views of other key Republicans, including House Budget Committee Chairman Paul Ryan (R-Wis.). In June, Ryan called the idea “sugar-high economics.” 

But Republicans have also moved on the issue. GOP leaders in the lower chamber have said they are willing to work with the White House and Democrats on the payroll tax cut, and seem to want the issue to be dealt with by year’s end. 

Under the Democratic proposal, workers would owe a payroll tax rate of 3.1 percent in 2012, as opposed to this year’s rate of 4.2 percent. The payroll tax for workers was originally lowered for one year, from 6.2 percent, in last December’s tax-cut compromise.

The Democratic plan would also lower the payroll tax for companies to 3.1 percent, on the first $5 million in wages. 

In all, Democrats say their plan would give families average tax relief of $1,500 next year.

Party officials have cited a series of economists who have said in recent days that not extending the tax break could put a serious dent in economic growth next year. 

Republicans on Tuesday dismissed the upcoming payroll tax and millionaire surtax vote, with Speaker John Boehner’s (R-Ohio) office also saying in a release that one-third of small business income would be hit by the surtax. 

They also said they had no concerns that Democrats were gaining a leg up with voters on the tax issue, and that they had heard very little concern back home about the payroll tax cut expiring at the end of December. 

“We’ve had enough political votes,” Sen. Olympia Snowe (R-Maine) told reporters.

She and other GOP senators said they were concerned that concentrating on piecemeal proposals would distract from work on broader tax reform.

“What I’ve heard from employers is that a one-year policy isn’t going to be sufficient unto itself to prompt them to hire people,” said Snowe, a member of the tax-writing Finance Committee. “Because that’s a long-term cost. They have to look at multiple-year policies.”

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Sen. John Thune (R-S.D.), also a Finance member and a part of Senate GOP leadership, was somewhat skeptical of what he called a short-term measure, even if not extending it might weigh down the economy next year.

“I’m not a big proponent of that particular tax policy as something that promotes long-term economic growth,” Thune said.

At the White House on Tuesday, Alan Krueger, chairman of the White House Council of Economic Advisers, said the millionaire surtax would not affect most small businesses.

But he and White House press secretary Jay Carney did not close the door on not offsetting a payroll tax cut at all.

That idea could gain the support of at least one Republican, Sen. Scott Brown of Massachusetts, who noted that the current payroll tax cut had not been paid for.

But Republicans interested in the extension also brushed off the Democratic attempts to use the issue to their political advantage.

“Look at our numbers. Nobody believes we’re trustworthy. I don’t care which party you are,” said Sen. Mike Johanns (R-Neb.).

— Alexander Bolton and Jonathan Easley contributed to this story.

— Posted at 6:35 p.m. and updated at 8:04 p.m.