Democrats eye 3.25% millionaire surtax

U.S. Senate Democrats are proposing to use a 3.25 percent surtax on income over $1 million to pay for extending and expanding a payroll tax cut, setting up a test vote as early as this week.

If Congress doesn’t act, a 2 percentage-point cut in the payroll tax for workers will expire Dec. 31. The Democrats’ $265 billion proposal would cut the 6.2 percent Social Security portion of the payroll tax in half for workers, cut the employer portion in half for companies on their first $5 million in wages and eliminate the employer tax on certain wage increases. Payroll tax cuts spur consumer spending and increase employment, according to the Congressional Budget Office.

Senate leaders from both parties signaled today that the attempt would likely fail with Republicans opposing the plan. Democrats accused Republicans of trying to harm the economy to improve their political prospects in 2012 and said they would continue to press the issue by forcing repeated votes.

“The Republicans are giving themselves whiplash on the issue of taxes,” Charles Schumer of New York, the third-ranking Democrat in the Senate, told reporters on a conference call. “The public is starting to figure out that Republicans have one position on taxes when it comes to the wealthy and another when it comes to everybody else.”

$120 Billion

Senate Majority Leader Harry Reid said the existing payroll tax cut put $120 billion into families’ hands this year to help bolster the economy.

Minority Leader Mitch McConnell, a Kentucky Republican, said the Democrats’ attempt to pair temporary tax cuts with permanent tax increases was a political ploy rather than a sincere attempt to pass legislation.

“We should do what we were sent here to do, and that means more bill signings and fewer bus tours,” McConnell said, alluding to President Barack Obama’s attempts to sell his jobs plan.

The 3.25 percent surtax would apply to modified adjusted gross income over $1 million for single filers and married couples filing taxes jointly. It would take effect in 2013, according to a bill summary provided by Senate Democrats.

Some Republicans, including Arizona Senator Jon Kyl, questioned the economic benefits of a payroll tax cut extension.

“The payroll tax holiday has not stimulated job creation,” he said on “Fox News Sunday” yesterday. “We don’t think that is a good way to do it.”

Obama’s Job Proposal

The debate over the payroll tax cut continues the two parties’ clashes over economic and fiscal policy. The payroll tax-cut extension and expansion is part of Obama’s $447 billion job-creation proposal.

The existing payroll tax cut is one of several items that expire by the end of the year, including expanded unemployment benefits, a delay in scheduled cuts in Medicare payments to doctors, and miscellaneous tax breaks.

Michael Steel, a spokesman for House Speaker John Boehner, said in a statement that the proposal would hurt businesses that report profits on their owners’ individual tax returns.

“Republicans have said that extending the payroll tax break is a potential area of common ground, but coupling it with a job-killing tax hike on small businesses makes no sense whatsoever,” Steel said. “It looks like Washington Democrats are playing politics with American jobs — again.”

–Bloomberg News–