WASHINGTON -- Senate Democrats offered their second plan to extend the payroll tax cut Monday, this time proposing a smaller tax on the wealthy to pay for the middle-class cut. Highlighting the political nature of the effort as well as the economic importance, Senate leaders released the bare bones of the plan in a coordinated push with President Barack Obama.
A plan last week to boost the payroll tax cut from 2 percent now to 3.1 percent next year failed, with just one Republican senator signing on and Democrats losing three from their own caucus. The cut would have been paid for by levying a 3.25 percent surtax on income above $1 million -- a proposal toxic to the GOP, but designed to cast Republicans as friends of the rich.
The payroll tax cut has saved the average household about $1,000 in 2011. It primarily helps the middle class because it targets the 6.2 percent payroll tax, which funds Social Security and applies only to the first $106,000 in income.
Among the Democrats who opposed last week's plan, Sen. Joe Manchin of West Virginia opposed the cut because he fears it will undermine Social Security.
The new proposal would slap a smaller surtax on those top earners -- just under 2 percent -- and would not be permanent. It would cost less -- $185 billion instead of more than $260 billion -- because it would not extend the 3.1 percent cut to employers as well as employees, as the earlier plan did.
Democrats also said they would include some revenue-raisers supported by the recently failed super committee, but did not specify what those were.
They were very clear about the political argument against the GOP's opposition to the payroll tax cut.
"Last week, virtually every Senate Republican voted against that tax cut," President Obama said, speaking at the White House nearly concurrently with Senate Majority Leader Harry Reid's comments on the Senate floor. Sen. Susan Collins of Maine was the only Republican to vote for it.
"Now, I know many Republicans have sworn an oath never to raise taxes as long as they live. How can it be that the only time there's a catch is when it comes to raising taxes on middle-class families?" Obama wondered. "How can you fight tooth and nail to protect high-end tax breaks for the wealthiest Americans and yet barely lift a finger to prevent taxes going up for 160 million Americans who really need the help? It doesn't make sense."
Republicans had not yet been provided with the details of the Democratic plan, so they could comment only generally, noting that three Democrats opposed the last version -- not just the GOP.
"The only thing bipartisan about a tax hike is the opposition," said a spokesman for Senate Minority Leader Mitch McConnell (R-Ky.), referring to the tax on the wealthy.
McConnell has said that the payroll tax cut should be extended, but Reid noted in his floor speech that only 20 Republicans voted for the version of the extension that McConnell offered last week, which would have been paid for by reducing the federal workforce.
"Whatever my friend Senator McConnell may say, it is obvious Republicans just aren't interested in preventing a $1,000 tax increase on nearly every family in this nation from taking effect on Jan. 1," Reid said, maintaining the partisan tone.
Obama made one other point to cast the GOP as friends of the rich and no one else, noting that Republicans rewrote House rules this year to require new spending to be paid for, but not new tax cuts.
"They explicitly changed the rules to say that tax cuts don't have to be paid for," Obama said. "So forgive me a little bit of confusion when I hear folks insisting on tax cuts being paid for."
UPDATE: 4:38 p.m. -- Democrats say the best way to fund the payroll tax cut -- besides hitting up the rich -- is to add a fee that lenders would pay to mortgage giants Fannie Mae and Freddie Mac, which should raise $38.1 billion. The Democratic plan also adopts a proposal from Sen. Tom Coburn (R-Okla.) to bar millionaires from collecting food stamps or unemployment insurance, which Sen. McConnell signed on to last week.