Alabama Sen. Jeff Sessions may believe that a payroll tax cut is not a tax cut, but the rest of the Republican conference seems to disagree. Sens. Dean Heller, R-Nev., and John Thune, R-S.C., have introduced a plan, which has been embraced by Minority Leader Mitch McConnell, R-Ky., that would extend the current payroll tax cut rates for another year and offset them by cutting government spending.
Before 2011, employers and employees each paid a 6.2% tax on all wages paid to employees. The mini-stimulus passed by the lame duck 111th Congress last December, lowered the employee portion of the payroll tax to 4.2% which cost the federal government an estimated $111 billion in lost revenue. This shortfall was added directly to our national debt.
For 2012, Democrats have proposed cutting both the employer and employee payroll tax in half (to 3.1% each), although the employer payroll tax cut would only apply to the first $5 million in wages. This would cost the U.S. Treasury $265 billion, which the Democrats want to pay for with a permanent 3.25% surtax on incomes over $1 million.
The Republican counter offer would keep the employee payroll tax at 2011 rates (4.2%) and would more than offset that cost by extending the current two-year pay freeze for federal workers for another year, trimming the federal workforce by 10 percent as outlined by the Simpson-Bowles commission, and means testing Medicare, unemployment compensation and food stamps for millionaires.
The plan also includes Thune's 'Buffett Rule Act of 2011,' which makes it easy for millionaires like Warren Buffett to pay what they think is their fair share with a voluntary contribution to the Treasury via their tax returns.
Republicans claim their plan would end up reducing the debt by $111 billion.