Payroll tax cut could be extended, say Grassley, Harkin

U.S. Sens. Chuck Grassley and Tom Harkin are optimistic about extending a Social Security payroll tax cut that could have a $1.8 billion impact on Iowa families, but disagreement over how to pay for it could end the tax cut that was supposed to spur the economy.

Republicans have agreed to keep the payroll tax rate at the current level for another year at a cost of approximately $120 billion. They propose freezing pay for federal employees and reducing the workforce by 10 percent.

“That's not going to fly anywhere,” Harkin said during a conference call with Iowa reporters Thursday.

GOP senators also propose that rather than impose a permanent tax on millionaires to pay for a temporary tax cut, they make them ineligible for unemployment compensation and food stamps, and increase their Medicare premiums.

That would impact the same people as the tax hike Democrats propose, Grassley said.

Although there is a sense of urgency because the tax cut could run out if Congress doesn't act before the end of the year, U.S. Rep. Bruce Braley warned that it could fall victim to “political gamesmanship.”

Assuming the Senate approves the plan and sends it to the GOP-controlled House, “it will be another political football and we'll be struggling to find an opportunity to get it passed because of strong objections of the Republicans in the majority in House,” Braley said.

Still, given the timing, Harkin said, “There's nothing like the specter of being here on Christmas Eve to get Congress to act and do something.”

President Obama has proposed increasing the tax cut from 2 percent to 3.1 percent for 2012. According to the Treasury Department, the collective impact in Iowa of the current tax cut has been $1.1 billion for 1.7 million Iowans.

If Congress approves the larger tax cut, the impact in Iowa would be $1.8 billion for 1.8 million people or about $1,000 for an average working family.

The Treasury says the tax cut would have no impact on Social Security solvency as long as general fund revenue is transferred into the program to offset the lost revenue.

The tax cut was pitched as an economic stimulus. Given the “enormous positive economic impacts, I think it's the sort of thing that should be accepted on both sides of aisle,” Braley said.

Grassley remains unconvinced whether the payroll tax cut had created jobs.

“I want to know whether taking $120 billion out of the Social Security fund had a good economic impact,” he said.

A vote on the plan could come as soon as Friday in the Senate.

In the House, Braley said Republican leaders will have to decide whether to pass the tax cut extension with Democratic votes if they cannot bring their own members on board.

“It's always difficult to predict what the House Republican leadership will do because quite often it's not the Republican leadership that is the problem in trying to come up with a bipartisan solution, but the large percentage of  new members who have an ideological litmus test for voting on issues like this,” he said.