Obama challenges GOP on demand that payroll tax cut be paid for

President Obama on Monday said he's puzzled by Republican demands that the cost of the payroll tax cut be paid for elsewhere in the budget.

Speaking to reporters at the White House, Obama stressed that he is willing to work with Republicans to find a way to pay for extending the payroll tax holiday, which expires at the end of the month.

But the president also said he's befuddled by Republican calls to offset the tax cut, claiming Republicans did not make similar demands when George W. Bush was in the White House.

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“When the Republicans took over the House at the beginning of this year, they explicitly changed the rules to say that tax cuts don't have to be paid for,” Obama said. “So forgive me a little bit of confusion when I hear folks insisting on tax cuts being paid for.”

The president said it would be "irresponsible" to cut social programs to cover the cost of payroll tax relief, as some Republicans have proposed. Obama noted that this summer's debt-ceiling deal authorized hundreds of billions of dollars in spending cuts and said he would not endorse an offset that would harm the economy.

“It would be irresponsible to now make additional deep cuts in areas like education, or innovation, or our basic safety net that are critical to the economy in order to pay for an extension of the payroll tax cut,” Obama said, noting that economists have said an extension will help the economy.


“We’re not going to do that,” he said. “Nor are we going to undo the budget agreement that I signed a few short months ago.”

Senate Democrats on Monday unveiled a slimmed-down payroll tax cut proposal and are trying to put Republicans on the defensive over the issue.

Democrats have hammered the GOP for not endorsing extending payroll tax relief and for rejecting their proposal to pay for it by implementing a surtax on millionaires.

House Republican leaders have pressed their rank-and-file to get on board with a one-year extension of the payroll tax cut and have laid out potential offsets for their members.

The new Democratic plan would scrap the tax relief for employers that Obama had sought but would lower the payroll tax rate for workers in 2012 to 3.1 percent. In 2011, employees pay a 4.2 percent rate, down from 6.2 percent.

It also comes with a price tag of $180 billion, which would be paid for with a smaller surtax on millionaires than previously proposed, after the Senate voted down dueling payroll tax proposals last week.

Analysts say the average family will see their tax bill lowered by close to $1,000 this year because of the 2011 payroll tax cut, and the White House says a 3.1 percent rate would mean an extra $1,500 for families in 2012.

A House GOP leadership aide said the “proposal moves in the right direction” but was still a sign that Democrats were more interested in playing politics than passing legislation.

“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.

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Some GOP lawmakers have said they don’t oppose allowing families to keep more of their paycheck.  But they also want more permanent tax changes and have expressed concern about the tax cut’s impact on Social Security. Republican leaders have also not shown much interest in deepening the payroll tax cut, instead proposing to keep the rate at 4.2 percent in 2012.

The payroll tax funds Social Security, and general Treasury funds are to be used to make up for any revenues lost to the entitlement program because of the payroll tax cut.
 
The 2011 payroll tax cut is estimated to reduce revenues by $112 billion.

On Monday, Obama also referenced the anti-tax pledge overseen by Grover Norquist and Americans for Tax Reform, pressing the case that the GOP appears willing to make an exception on a tax hike that would land largely on the middle class.