Democrats say they are open to extension of payroll tax holiday

Democrats are sounding increasingly open to extending the payroll tax cut after months of keeping it at arm’s length.

Leading members of the party, like Republicans in Washington, had previously appeared to have no issue with letting the tax break lapse on Jan. 1, an outcome that would raise taxes for some 160 million workers.

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But with the economic recovery puttering along, prominent Democrats like Larry Summers and Rep. Chris Van Hollen (Md.) are suggesting that the party rethink that approach — even as they continue to stress that the tax cut remains nothing more than a temporary measure.

“I always thought that talk of payroll being completely sunsetted was a bit premature,” a Senate Democratic aide told The Hill this week.

That shift on the Democratic side could add even more uncertainty as Washington tries to deal with the looming spending cuts and tax increases known as the “fiscal cliff” after the election. 

Ending the 2-percentage-point cut in the payroll tax had appeared to be a rare part of the cliff that top Democrats and Republicans agreed on.

But lobbyists and aides on Capitol Hill say there might be good political reason for Democrats to push for a third year of the holiday, as it could give them another political chip in what could be protracted fiscal-cliff talks.

“This is part of an effort to frame the debate as we head into the negotiations in the lame duck — why would we leave the one tax cut that helps working people off the table before we even start discussions?” a House Democratic aide said.

Republicans have long been skeptical that the payroll tax cut helps the economy. The AARP, the powerful seniors lobby, also argued recently that extending the cut would weaken Social Security.

Treasury Secretary Timothy Geithner and House Minority Leader Nancy Pelosi (Calif.) are among the high-profile Democrats who have suggested the tax cut will end after its second year.

Other Democrats, concerned about Social Security, have been skeptical of the holiday from the start. 

But Summers, a top economic adviser to the last two Democratic administrations, said this month that the economy was too weak to allow the payroll tax cut to expire. Van Hollen said Friday that another extension should be in play during the lame-duck session of Congress.

Other leading Democrats share that view, congressional staffers told The Hill. The White House has long been noncommittal about an extension.

Drew Hammill, a spokesman for Pelosi, said the Democratic leader never took the payroll tax cut off the table, even if she had declared in September that she hoped the tax cut was not extended.

Pelosi had also said she “could be convinced” of extending the lower rate “if it was part of something that advanced our economy down the road.”

“We must come together and reach a long-term agreement, and in moving that process forward those who have ideas, including an extension of a payroll tax cut, should put them on the table,” Hammill said in an email. 

Still, some in Washington are far from sure that Democrats are prepared to go to bat for the payroll tax cut.

A lobbyist working the issue said Democrats had not started an orchestrated push for an extension, and that Van Hollen’s recent comments suggested the party was formulating a negotiating strategy.

Democrats could be “putting together their list of concessions” to horse-trade, the lobbyist said.