This article first appeared in the St. Louis Beacon, Dec. 6, 2011 - WASHINGTON - Note: article has been updated following a Capitol press conference - Trying to break a Senate impasse over extending the payroll tax cut, a bipartisan pair of senators -- Claire McCaskill, D-Mo., and Susan Collins, R-Maine -- floated a plan Tuesday that would pay for that extension by ending Big Oil tax breaks and imposing a tax surcharge on millionaires that would spare some small businesses owners.
The bill aims to mollify the objections of some Republicans by weakening a controversial environmental regulation, extending three tax provisions that are set to expire at year's end -- including R&D tax credits and bonus depreciation -- and expanding the payroll tax cut to employers. It would also channel an extra $25 billion into highway and bridge programs.
At a Capitol news conference, McCaskill said the plan "is responsible, it is thoughtful, it will work -- and we believe can gain additional bipartisan support." However, she and Collins conceded that Senate leaders, while notified that the bill was being filed, had made no commitments to bring it to a vote.
Without an extension of the payroll tax cut, which expires on Dec. 31, the average family would pay an extra $1,000 next year.
Asserting that the plan answers the objections of GOP lawmakers who fret about a 2 percent surtax on incomes over $1 million hurting job-creating small businesses, Collins told reporters that it was "critical" for the bipartisan plan to "protect small business owner-operators . . . We wanted to make sure that we were not imposing a surtax on the job creators."
To that end, the legislation includes a "carve-out" that would exempt most small business owners who report their business income as part of their personal income -- some 13 percent of the nation's 392,000 million-dollar-income taxpayers. Collins said the carve-out would exempt "70 percent of small business income," sparing owner-operator "active investors" but not passive investors.
McCaskill agreed that "the carve-out is essential" to protecting owner-operator small businesses and meeting GOP political objections to the surtax. "I'm optimistic that we can get more Republicans on this bill," she said, especially because the bill also offers a "more generous" payroll tax cut to small businesses -- applying the tax reduction to the first $10 million in payroll.
The bill, the "Bipartisan Jobs Creation Act," offers the latest approach to extending the payroll tax cut without worsening the federal budget deficit. On Thursday night, the Senate blocked both a Democratic and a Republican extension plan that would pay for the payroll tax cut in different ways, with the Democrats pushing for a millionaires surtax and the GOP proposing cuts and a freeze on federal pay increases.
On Monday, Sen. Robert P. Casey Jr., D-Pa., introduced a scaled-down version of the Democratic plan. It aims to appeal to GOP lawmakers by lowering the proposed millionaires tax surcharge (to 1.95 percent of income over $1 million, down from 3.25 percent), but -- unlike last week's plan -- it provide no payroll tax break for employers. Casey's plan was panned by many Republicans, and House Speaker John Boehner, R-Ohio, was developing an alternate plan.
In a White House appearance on Monday, President Obama contended that the payroll tax cut needs to be extended to ease the plight of middle-class families next year. "My message to the Congress is this: keep your word to the American people and don't raise taxes on them right now," Obama said.
A National Journal survey reported that 58 percent of Americans (including about half of Republicans surveyed) favored an extension of the payroll tax cut. Also, GOP presidential hopeful Mitt Romney told reporters Monday that he supported an extension of the payroll tax cut, although a spokeswoman clarified that he did not back a tax surcharge on millionaires to pay for it.
The McCaskill-Collins approach did not seem likely to convince the GOP lawmakers -- including Sens. Roy Blunt, R-Mo., and Mark Kirk, R-Ill. -- who object to an extension of the payroll tax cut on the grounds that it sets a bad precedent and weakens the Social Security trust fund. Payroll taxes go to the trust fund; proponents of a payroll tax cut say the income from other sources would be used to replenish the payroll-tax amounts that would be diverted from the trust fund.
After he voted against both Senate versions last week, Blunt said he opposed extending the payroll tax cut "because it significantly jeopardizes the future of Social Security by further separating the program from its main source of revenue."
Kirk, who also opposed both bills, said "Social Security was designed to be independent and free from the danger of congressional manipulation, and maintaining the firewall between the Social Security Trust Fund and general government funding is the best way to maintain the solvency of this important program."
Senators Seek Cost Estimate of Bill's Provisions
Collins and McCaskill said they had asked the Congressional Budget Office to "score" the bill's many provisions to estimate their cost, and to determine whether the income from the proposed surtax and ending Big Oil tax breaks would be enough to cover the costs.
Here are the major provisions of the bill, as outlined by the senators:
- Extends the current payroll tax cut for employees, who are now paying a tax of 4.2 percent to Social Security, rather than the 6.2 percent rate that would be restored on January 1 if Congress takes no action to extend the tax cut.
- Expanding the payroll tax cut to some employers. Instead of the 6.2 percent rate, businesses would pay only 4.2 percent on the first $10 million of employer payroll.
- Impose a 2 percent surtax on taxpayers earning more than $1 million a year. There would be a "carve-out to protect small businesses, which typically pay taxes through the individual income tax system."
- Eliminate certain tax breaks for the five major integrated oil companies.
- Provide a tax credit of 25 percent of qualified equity investment in high-tech small businesses that are less than five years old, and are headquartered in this country.
- Extend three tax provisions set to expire at month's end: the 100 percent Bonus Depreciation, the R&D Tax Credit, and the 15-year Restaurant and Retail Depreciation
- Authorize a one-time $10 billion appropriation to capitalize an existing Transportation Department program that help states provide loans, loan guarantees, and other aid to leverage private dollars for infrastructure projects.
- Provide an extra $25 billion in funding for highway and bridge core formula programs.
- Provide $800 million in additional funding to the clean water infrastructure fund, with help finance wastewater and drinking water projects.
- Directs the EPA to collect testing data during a 15-mnth delay in imposing the controversial "Boiler MACT" rules, which many industries complain about.
- Consolidate duplicative federal job programs, and using half the savings to bolster training programs and the other half to reduce the federal deficit.