In a not-unexpected move, Senate Republicans late Thursday killed — at least for now — an extension of the payroll tax cut. The move, on the eve of the release of unemployment data that showed a modest 120,000 job gain, but a decline in the unemployment rate from 9.0 to 8.6 percent, came as both parties say their number one goal is creating jobs.
The Democratic proposal to extend the 2 percent payroll tax holiday which is set to expire at the end of December, and to pay for it through a tax on incomes above $1 million, went down on a procedural vote, 51 to 49, after a Republican filibuster made it necessary for Democrats to find 60 votes for passage.
A group of Senate Republicans had a payroll tax cut extension plan of their own: one which would have paid for the tax cut extension by cutting 200,000 federal workers; an odd way to reduce unemployment, by creating more of it among government employees. That plan was defeated by a lopsided 78-20 “no” vote.
The Democratic proposal would have kept in place a tax cut negotiated last December, that puts about $1,000 extra into the paychecks of middle class families, according to a Treasury Department report circulated by the White House on Wednesday. The Obama administration had proposed expanding the payroll tax cut from 2 percent to 3 percent, which the Treasury’s Office of Tax Policy said would mean about $1,500 extra for a “typical” American family — or about 159 million workers who pay payroll taxes.
The idea behind the payroll tax cut is simple: reducing the amount employers pay toward the federal tax translates into a 2 percent, or if the White House had gotten its way, 3.5 percent — pay hike for middle class workers, who earn most of their income through their paychecks, and who spend most of their paychecks on day to day expenses.
Wealthier Americans, who earn most of their income through investments or stock dividends, don’t get the benefit. But corporate CEOs do get the benefit of that same consumer spending, which is what drives both the economy and corporate profits. So in a way, it’s the middle class shoppers and car buyers and credit card users, not the wizards of Wall Street and Big Business, who are the “job creators,” since it’s their spending that keeps businesses going.
And the lower you go down the income scale, the more likely it is that the extra $1,000 or $1,500 a year in income will get spent right back into the economy. Laying off 200,000 federal workers and adding them to the unemployment rolls: not so much.
Democrats will likely bring back the payroll tax extension, and in the end, it’s likely Republicans will vote it through, since raising taxes on the middle class is bad politics, particularly in a presidential election cycle. But the vote on Thursday gave both parties a chance to show where they stand, on jobs, on which Americans deserve tax breaks, and on how best to boost the economy — all good information for Americans to have heading into 2012.