WASHINGTON -- For the past two years, U.S. workers have enjoyed a 2 percentage-point increase in take-home pay thanks to a payroll tax reduction trumpeted by lawmakers as an effective lift for a sagging economy. Come Dec. 31, that cut will expire -- and policymakers don't seem too upset about it.
In a victory for the Obama administration during the lame duck session of 2010, Congress reduced the payroll tax rate from 6.2 percent to 4.2 percent, giving the average U.S. household an additional $1,000 per year. Democrats demanded an additional extension at the end of 2011, and while Republicans initially balked, the political repercussions of hiking taxes on struggling families proved too much to bear.
Now facing another deadline, the White House has gone almost completely quiet on one of its favorite stimulus policies. In a report released Monday morning, the administration warned that middle-class families will pay thousands more in taxes next year unless Republicans relented on income tax breaks for the rich. But the report didn't mention the soon-to-expire payroll tax cut.
At the daily briefing later on Monday, Alan Krueger, chairman of President Barack Obama's Council of Economic Advisers (CEA), said that the payroll tax cut clearly gave a boost to middle-class families and to the economy in general over the past year. But he stopped notably short of supporting its extension.
"There are many tax provisions that are expiring at the end of the year and the president has said that the payroll tax cut, among others, should be on the table," Krueger said, referring to fiscal cliff talks, during an unexpected appearance at the daily White House press briefing.
Krueger also demurred when asked if the government would get a bigger bang for its buck by extending the payroll tax cut versus the Bush tax cuts.
"I don't have a really good answer for you," Krueger told reporters, adding that the new CEA report is only focused on extending the Bush tax cuts for the middle class. He noted that the payroll tax cuts were "explicitly temporary" when they were created.
Congressional leaders are similarly difficult to read, though many signs hint at the demise of the payroll tax cut. House Minority Leader Nancy Pelosi (D-Calif.) said in September the tax cut should be allowed to expire. Michigan Rep. Sander Levin, the top Democrat on the House tax-writing committee, said this month that the fate of the payroll tax cut should be decided after the Labor Department releases new employment numbers at the beginning of December.
Some lawmakers are supportive of continuing the policy. Sen. Chuck Schumer (D-N.Y.), said at a recent Christian Science Monitor breakfast that a payroll tax cut extension or "some kind of stimulus" is "certainly on the table ... as part of the grand bargain," arguing that this is needed in an economy is "still moving slowly." Schumer's aide, Brian Fallon, confirmed that the senator still believed extending the payroll tax cut should be on the table.
Jared Bernstein, Vice President Joe Biden's former chief economist, said in an email that he was "very concerned" about the expiration of the payroll tax cut and that he has voiced these concerns routinely.
"It's a real whack at paychecks when that's something we should assiduously avoid (because the market's been tough on most people's earnings of late)," he said.
But Senate Majority Leader Harry Reid (D-Nev.) has not commented on whether he thinks the cut should be extended. A spokesman for his Republican counterpart, Senate Minority Leader Mitch McConnell (R-Ky.), said Monday that the senator wouldn't wade into the debate. A spokesman for House Speaker John Boehner (R-Ohio) did not respond to a request for comment.
Other progressive economists and lawmakers have argued that if the payroll tax cut is not extended, something else should take its place. One top Senate Democratic aide called that "a pretty consensus view on our side." But there are clearly detractors. Many lawmakers and outside stakeholders have expressed concern that diverting tax money from Social Security -- which the payroll tax helps fund -- would weaken the program, which provides an average monthly benefit of $1,237 to some 40 million seniors. The Social Security Administration's actuaries say the trust fund will run out of money in 2033, at which point incoming tax revenue could support just 75 percent of benefits.
AARP, the lobby group for senior citizens, said in a statement Monday that it is glad the White House left the cut out of its tax report. The organization has previously said the payroll tax should return to normal.
"We're pleased the White House doesn’t mention the payroll tax holiday since extending it would undermine Social Security’s separate dedicated funding source," AARP executive Joyce Rogers said in an email. "We also remain committed to keeping Social Security and Medicare benefit cuts out of any 'fiscal cliff' negotiations."
Sen. Bernie Sanders (I-Vt.), a self-described socialist who has been a vocal advocate of social insurance programs, said Monday that he is "strongly opposed" to keeping the tax holiday, since doing so could damage Social Security's solvency.
"The middle class deserves tax relief, but not at the expense of Social Security," Sanders said. "The president and members of his administration have been very clear that the payroll tax reduction was temporary and would not be extended. I expect them to keep that commitment."
Grover Norquist, the prominent anti-tax advocate, has stated in the past that he would only be comfortable with eliminating the payroll tax cut if a tax relief package of the same or larger size was put in its place. Norquist, who has been ubiquitous in the media in recent weeks as the country debates the expiring Bush tax cuts, did not return repeated requests for comment for this article.
Additional reporting by Jen Bendery.
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