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Payroll Tax Cut Without Offsets Contemplated By White House, Congress And Norquist

Obama Grover Norquist

First Posted: 12/06/11 02:46 PM ET Updated: 12/07/11 08:35 AM ET

WASHINGTON -- As the United States Senate considers yet another variation of the payroll tax cut, there appears to be little common ground over how the measure should be paid for. Democrats, along with one Republican, continue to argue for a small surtax on millionaires. Republicans either balk at that proposal or say they don't support extending the payroll tax cut at all.

The impasse is unlikely to be bridged by the time the newest bill comes to the floor on Thursday, leading operatives to suggest that it would simply be easier to pass the payroll tax cut extension without paying for it.

Longtime anti-tax advocate Grover Norquist said he would prefer to see the tax cut accompanied by an equivalent reduction in spending to make up for the decrease in revenue. He and other conservatives said that if spending offsets do not accompany the tax cut, it would be harder for Democrats to argue against other such tax cuts, including a repatriation holiday on corporate taxes.

"No to a tax increase, yes to extending it without a quote, unquote 'pay for,' and the preference is to do it with spending cuts as the offset," said Norquist. "The worst thing you can do would be to extend it with a permanent job-killing marginal tax increase. You would end up with permanent marginal tax rates in exchange for a temporary reduction in tax rates on Social Security."

When the payroll tax cut was first introduced at the end of 2010, there was no talk about how it would be offset. Instead, it was passed as part of an agreement to extend the Bush tax cut for an additional two years. The estimated $860 billion price tag was simply put on the books.

So why not do the same now, when the price tag is significantly lower -- $185 billion to reduce the employee’s share from 4.2 percent to 3.1 percent of wages, along with other tax policy changes -- and Republicans have, as a matter of ideological principle, argued that tax cuts pay for themselves?

The question was posed to two senior Obama administration officials during a briefing with reporters yesterday. And while they continued to argue that there were easy ways to cover the payroll tax cut -- while needling Republicans for suddenly insisting that tax cuts be offset -- they never explicitly said it had to be paid for.

"So we still think that the payroll tax, unemployment insurance, any other jobs measures can be paid for in a responsible way," one said. "The important thing here, though, is that this get done."

Reminded that, at least as far as unemployment insurance is concerned, the president has consistently held that such emergency expenditures don't need to be offset, the official replied: "I don't think the president's longstanding position on that has changed. But there is a way of paying for it that was put forward in the American Jobs Act."

And therein lies the problem. While both Republicans and Democrats privately admit that they have been and would be comfortable with letting tax cuts continue without offsets, neither will say so publicly, lest their commitment to deficit reduction be questioned.

Top congressional Republican aides argue that a payroll tax cut extension without offsets isn't necessarily easier to pass than one paid for by a millionaire's surtax. But the reasoning behind that argument has more to do with timing than philosophical disputes.

Congress will be voting on major appropriations bills before the Christmas recess. To have them turn around and stack $185 billion on the deficit would be too much to ask, the logic goes.

"The president said in his speech to Congress and in speeches since, that ‘everything’ in the bill will be paid for," Don Stewart, a spokesman for Senate Minority Leader Mitch McConnell (R-Ky.), said in an email. "I think it will be MUCH easier to pass it if they take out the poison pill of a tax hike on job creators; a tax hike, by the way, that has bipartisan opposition."

A top House aide was more blunt. "I don't think either would pass the House," the aide explained, when asked about a payroll tax cut extension without offsets and one that was paid for with a millionaire's surtax. "So it's a 'would you rather burn to death or drown' type of question."

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