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How Would Payroll Tax Extensions Be Funded?

November 30, 2011 at 12:00 AM EST
President Obama wants to extend a payroll tax cut and many Republicans do too, but both sides are far apart on how to get it done. Gwen Ifill discusses how the extension could be funded with White House National Economic Council Director Gene Sperling and Sen. John Barrasso, R-Wyo.
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GWEN IFILL: The president wants to extend a payroll tax cut. Many Republicans do, too. But both sides are far apart on how exactly to get that done.

It was no accident today that President Obama took his campaign to get Congress to extend a payroll tax cut to the must-win state of Pennsylvania and to Vice President Biden’s home town of Scranton.

PRESIDENT BARACK OBAMA: Send your senators a message. Tell them, don’t be a Grinch.

(LAUGHTER)

BARACK OBAMA: Don’t be a Grinch. Don’t vote to raise taxes on working Americans during the holidays.

(CHEERING AND APPLAUSE)

BARACK OBAMA: Put money back into the pockets of working Americans. Do your jobs. Pass this bill.

(CHEERING AND APPLAUSE)

GWEN IFILL: The tax cut, passed last December, dropped the rate two points, to 4.2 percent. The White House estimates that reduction saved a typical family about $1,000.

Now the president wants to slice the rate again to just over 3 percent for an average savings of $1,500. Democrats would pay the $265 billion cost by imposing a permanent surtax on the wealthy — those earning $1 million or more a year.

Republicans, like Senate Minority Leader Mitch McConnell, argue that taxing the wealthy penalizes the people who create jobs.

SEN. MITCH MCCONNELL, R-Ky., minority leader: It’s about whether we should help those who are struggling in bad economy by punishing the private sector businesses that the American people are counting on to help turn this economy around.

GWEN IFILL: But Senate Majority Leader Harry Reid says Republicans are balking because they favor the rich.

SEN. HARRY REID, D-Nev., majority leader: Every American family will have a $1,000 less to spend on food and clothing and diapers next year, except that 350,000 people. And so Republicans can continue to try to protect people who earn an average of $3 million apiece.

GWEN IFILL: But both sides appear to be edging towards some middle ground.

House Speaker John Boehner today:

REP. JOHN BOEHNER, R-Ohio, speaker of the House: Democrats here have called for them to be paid for. And so if, in fact, we can find common ground on these extensions, I think you can take to the bank the fact that they will be paid for.

GWEN IFILL: The president has also said any new spending should be paid for, but White House officials have stopped short of saying he would veto legislation that doesn’t meet that test.

We get the administration’s take first with White House National Economic Council Director Gene Sperling. I spoke with him a short time ago.

Gene Sperling, welcome.

GENE SPERLING, White House National Economic Council: Thank you.

GWEN IFILL: Finally, we seem to have an area of agreement between Republicans and Democrats, that there is a need to extend the payroll tax cut. So why isn’t it a slam-dunk at this point?

GENE SPERLING: Well, we hope it will be.

And what the president is calling for is not only extending the tax relief we gave last year, but expanding it so that we’re cutting payroll taxes up to $1,500 for typical families and cutting in half the payroll tax cuts of every small business in the United States.

We think this is obviously going to be very helpful for families who are struggling with higher gas and food prices. But perhaps even more importantly, it’s what we need for the economy. Private sector economists estimate that this payroll tax cut — the full payroll tax cut the president is proposing would mean up to 600,000 to a million more jobs.

With the type of unemployment we have and long-term unemployment, that type of job creation could not be more important at this point.

GWEN IFILL: So here’s the sticking point. You don’t agree on exactly how to pay for this.

Sen. Mitch McConnell put out a statement this afternoon about the Republicans’ proposal for about how to offset this, the cost of this, the $265 billion. He suggests freezing federal civilian salaries, laying off federal workers, means-testing government health benefits, unemployment and food stamps.

Is that something the president could accept?

GENE SPERLING: Well, there is a bill right now that the Senate will be voting on that the president very much supports. It would pay for this tax relief for every small business and worker in a way that we think is very fair and fiscally responsible.

It asks those who make over $1 million, only 300,000 Americans, to pay a little more, about 3 percent more a year in the next — in the coming years, so that we can give this type of tax relief, and not have the deficit go up by a single penny.

We really think that is a very strong, fair proposal that is supported by Democrats, Republicans and independents back home, whether or not it’s supported in Congress. And we’d still like to see — we still believe that can and will pass. And I think it’s a very hard thing for all the Republicans to vote against, in light of what it would do for small businesses and workers.

GWEN IFILL: Well, a lot of Republicans are saying that’s a nonstarter, that, in fact, you’re taxing the job creators by doing this. Are you just rejecting out of hand Sen. McConnell’s counterproposal?

GENE SPERLING: Well, two points.

One, we’re giving tax relief to over 99 percent of small businesses and entrepreneurs next year by cutting the payroll tax cut in half to have a tax increase that affects only the 300,000 most well-off Americans. So this is a very significant tax cut for small business, job creators, entrepreneurs.

And as to the — Mitch McConnell’s proposal, I really haven’t seen the details. And, to be honest, Gwen, it does get a little confusing for us, because first Republicans came in and told us that they didn’t think tax cuts should be paid for at all, and made a big point of that. Now they are — when we’re trying to give tax relief, they’re insisting that it must be.

And so I don’t know what they’re — what the exact pay-fors are, but if he want a bill that’s fully paid for, that’s fair, the easiest thing to do is simply vote for the proposal that Majority Leader Harry Reid has put out that the — President Obama supports, which would cut payroll taxes for every worker, every small business, and ask for a very small extra bit of taxes from the 300,000 Americans who make over a million dollars a year.

GWEN IFILL: Mr. Sperling, how do you know, even if you got everything you wanted, that this would even work?

The Joint Committee on Taxation says people will take this money and they will spend it, that it will hurt businesses. Other people say they will spend it on paying down debt, rather than stimulating the economy. How do you know this is a solution, rather than broad-brush financial — tax reform?

GENE SPERLING: We know because, if you look at private sector experts, Macroeconomics Advisers, Moody’s, the Congressional Budget Office, all of them recognize that this type of payroll tax relief is estimated to have a very significant impact on the economy.

Most experts independent of this administration would say that this would mean over a half-percent growth. Several have said this would mean up to 600,000 to a million jobs. It just makes sense. When families are pressed with higher gas prices, higher food prices, when they may have a member in their family who’s not working, they’re going to pull back on their spending.

An extra $1,500 in their pockets means that there’s going to be a lot more customers at a lot more small businesses. And that’s going to give them more ability to hire, give raises and do things that will help this economy gain momentum.

GWEN IFILL: National Economic Council Director Gene Sperling, thank you for your time.

GENE SPERLING: Thank you, Gwen.

GWEN IFILL: Immediately after that conversation, I turned to Wyoming Sen. John Barrasso, vice chairman of the Senate Republican Conference.

Sen. Barrasso, thank you for joining us.

SEN. JOHN BARRASSO, R-Wyo.: Thank you, Gwen.

GWEN IFILL: We just heard Gene Sperling say — press the president’s case for the tax on the wealthy as a way of paying for this payroll tax, and now we see that Sen. McConnell has a different proposal. Which do you think is the better approach?

SEN. JOHN BARRASSO: Well, I think the American people realize that the problem with this government is that we spend too much. They don’t think that we’re taxed too little. It’s that we spend too much.

And I agree with the president that we do need to extend these tax breaks for people all across this country who are stuck living under the Obama economy, with 9 percent unemployment in this country. And we need to extend that and allow those people to have an opportunity to have more of their hard-earned money in their own pockets.

But I think it should be paid for. I don’t think you should just add it to the debt. And the White House hasn’t yet said, no, no, we won’t do that. And I don’t think that you should raise taxes on anyone during these economic times.

If you go to what Bowles and Simpson had mentioned as ways to cut back on the size of government and do a hiring freeze, as well as a pay freeze, that’s clearly the way that I would see that we should pay for this. Many families across the country are living at 2007-2008 income levels. I think it’s reasonable to have federal government employees living that way as well.

GWEN IFILL: What about means-testing government health benefits, unemployment compensation and food stamps? Are you hitting the people who will be hurt the most?

SEN. JOHN BARRASSO: Well, we heard from Sen. Coburn here today that there are people actually on unemployment who make huge amounts of money, and as well as those on — on food stamps. And we want to see exactly — I want to see exactly what the language is there.

But I think, fundamentally, we need to get the economy going again. And Gene Sperling today had an editorial in the USA Today where he blamed the poor economy on the tsunami in Japan, on high gasoline prices, and on what’s happening in Europe.

And this administration with its policies have made it harder and more expensive for those who are seeking to create more American jobs and more American energy to do just that. So it’s the policies of this administration that have made matters worse.

GWEN IFILL: Republicans have supported this payroll tax holiday idea before, most recently last year, when this one was passed. What’s different this time?

SEN. JOHN BARRASSO: Well, I support it again this time. I just want to have it paid for. I don’t want to add it to the debt. I don’t want to have it added to the deficit. And I don’t think we should raise taxes on anyone in economic times like these.

So I do support this. I agree with the president. But I think we should do it by cutting spending. Our problem in this country is that we spend too much. And until we get the spending under control, we’re going to have continued problems. The American people know this. We’re spending now 25 percent of our gross national product on government, and we need to get that more to traditional levels of about 20 percent.

GWEN IFILL: Some of your colleagues, including Sens. DeMint and Snowe, have said that this — you should be overhauling the entire tax code, that this piecemeal approach is never going to get to the bottom of the problems you’re discussing. Do you agree with them or do you think that that’s just too much to hope for right now?

SEN. JOHN BARRASSO: Well, I agree we do need overall tax reform in this country. We need to eliminate all these lobbyist loopholes.

But it’s overall tax reform that I think is needed in this country, so we have a fairer, simpler tax system that people can understand without these loopholes that continue to be out there which I think are not fair and make it much, much harder for the average American.

GWEN IFILL: It’s clear that the White House or the Democrats in the Senate and the Republicans in the Senate do not agree on how to pay for something like this, even though you agree it’s a good idea in theory. Is there any chance that you will be able to meet this deadline — you have a test vote tomorrow night — that you will meet the deadline at the end of the year to prevent an automatic tax cut from taking effect?

SEN. JOHN BARRASSO: Well, I believe that we are going to work together to find a solution.

GWEN IFILL: Tax hike. Pardon me. I meant tax hike.

Go ahead.

SEN. JOHN BARRASSO: I believe we’re going to work together to find a solution that works for all Americans, so that we don’t have to raise taxes on anyone, and can just cut spending.

And a great place to start is with a hiring freeze with the federal government, as well as a salary freeze in the federal government. That’s a good place to start.

GWEN IFILL: What do you base your optimism on that you will find middle ground, with one side saying we want to tax the rich and the other side saying we want to freeze federal government?

SEN. JOHN BARRASSO: We both want to get to the same conclusion and the same outcome, which is to make sure that the American people do not see a change this year in terms of the tax benefits that they had last year.

We need to keep that money in the hands and pockets of the American people. We will get to that end. And the best way to do it is by cutting spending, not by raising taxes on anyone.

GWEN IFILL: Sen. John Barrasso, Republican of Wyoming, thank you so much.

SEN. JOHN BARRASSO: Thank you, Gwen.