POLITICS
09/08/2011 02:15 pm ET Updated Nov 08, 2011

Payroll Tax Cut: GOP Resistant To Extending Obama Policy

WASHINGTON -- Congressional Republicans over the past year have threatened to both shut down the government and default on U.S. debt in order to prevent tax hikes. But in January, without congressional action, payroll taxes are set to increase by 50 percent on millions of American workers. The GOP response? A resounding meh.

When President Obama travels to Congress on Thursday to deliver a major jobs speech, he'll be encountering a species previously considered mythical on Capitol Hill: Republicans who don't support tax cuts.

The one-year payroll tax cut was passed as part of the deal that extended Bush-era tax rates through 2012, and Republicans routinely described the potential expiration of that cut as a "tax hike." While the payroll tax cut applies to no more than the first $106,000 in income, the Bush tax cuts disproportionately benefit the wealthy. But the key difference between the two is the author: The payroll tax cut is Obama's and his alone.

HuffPost approached ten Senate Republicans in the Capitol on Wednesday and only two -- Sens. John McCain (Ariz.) and Scott Brown (Mass.) -- said they'd support an extension of Obama's payroll tax cut. Both said that such an extension, however, should apply to employers as well as workers, a costly addition to the policy that the White House has objected to. McCain and Brown argue that cutting payroll taxes on employers will free up money they can use to hire workers. But employers, in general, aren't hiring because there is not enough demand in the economy (since consumers don't have enough money) -- not because the companies themselves are short on cash.

An employer-side cut would just increase the amount of money companies are holding on the sidelines, economist Dean Baker argued recently, while an employee-side cut injects demand into the economy by increasing the size of workers' paychecks -- or, in the case of extending the payroll tax cut, by not decreasing them. An analysis by Goldman Sachs warned that letting the tax cut expire could “potentially reduce growth by as much as two-thirds of a percentage point in early 2012.” Macroeconomic Advisers estimated that extending the tax cut could "boost real GDP growth half percentage point over the year, and raise employment 400,000 by the fourth quarter.”

Regardless, the other Republicans HuffPost quizzed said they were either undecided about whether to extend the tax cut, or opposed to the idea.

"My personal view is that the debt is already impacting the economy," said Sen. Jeff Sessions (R-Ala.) "If your debt is this large, I think you've gotta be very careful about adding debt." HuffPost asked whether that view put the GOP in the unusual position of advocating that taxes go up on millions of people in January, when the one-year cut expires.

Sessions nodded yes. "It's a difficult thing ... Our country's in a difficult place," he said, adding a rather macabre silver lining: that at least the millions of unemployed Americans won't see their taxes go up. "We'd like to be able to keep the withholding low, but you don't pay it if you're not working, and so we've got a lot of people not working."

Sessions said that the payroll tax cut was never intended to be permanent. "It was promoted as putting more money in people's pockets so they would spend, that's the whole purpose -- not as a permanent tax cut," Sessions said. "I think it was [Sen.] Judd Gregg who said what tends to happen is people use that money to buy things from China."

GOP senators were equally unenthusiastic about business tax credits that have been floated during ongoing discussions about Obama's jobs package.

"The business tax credits? Now how's that different than the corporate jet industry? You should ask him that," said Sen. Roy Blunt (R-Mo.). Obama has made tax breaks available to the corporate jet industry a mainstay of his rhetorical challenge to Republicans opposed to tax hikes. Blunt is right that the credits could conceivably apply to corporate jet makers, who have protested their treatment by the administration.

Sen. John Cornyn (R-Texas), head of the Senate GOP's campaign arm, said tax cuts that aren't permanent won't boost the economy because they'll create "uncertainty."

"The problem is, I'm just not convinced they're going to work. While generally I'm all for keeping taxes low, I'm just not sure that's the best way to get people hiring again. I think what we need is long-term reform of the tax code," he said.

Sen. John Thune (R-S.D.) made a similar point. "I was never a fan of that last time around. I think it's a short term sugar-high today. I think we oughta be looking at policies that create long-term economic growth," he said, echoing rhetoric used by House Republican Budget Chairman Paul Ryan (R-Wis.).

"I do think it's one of those things we might get a little economic pop from," Thune added, but said that "pop" wouldn't justify the cut's $125 billion price tag.

Sen. Pat Roberts (R-Kan.), in declining to endorse the payroll tax cut extension, managed to question the integrity of the president's word and his ability to speak without a teleprompter in a single sentence. "I've learned until I see something on paper with the president, that it's hard to read on a teleprompter when he's reading and I can't," he said. "I would rather wait to see the whole package and how it works together."

Sen. Olympia Snowe (R-Maine) said she wanted to "wait and see," while Sen. Jim Inhofe (R-Okla.) said he was undecided. Senate Minority Leader Mitch McConnell (R-Ky.) declined to answer HuffPost's questions, noting that he'd be holding a press conference later on Wednesday. At that briefing, he said that "we're happy to listen to the president's proposals and take them under consideration."

Even the original Republican sponsor of the payroll tax cut, Sen. Orrin Hatch of Utah, said he wasn't sure he'd support an extension, though he left the possibility open. "I don't know," he said. "I was the author of the payroll extension last time around, along with [Sen. Charles] Schumer -- Schumer-Hatch -- but I didn't see much payoff."

Hatch, however, suggested that Republicans might ultimately return to their tax-cut-loving ways. "We'll have to see. I'm not so sure that they won't get on board," he said of his colleagues.

This story has been updated to include economic analysis of the effect of extending the tax cut.

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