Daily Tax Update - December 5, 2011: Senate Democrats Offer New Payroll Tax Plan

DEMOCRATS OFFER NEW PAYROLL TAX PLAN:  Today, Senator Bob Casey (D-PA), Chairman of the Joint Economic Committee, offered a compromise payroll tax extension bill.  The Senate is expected to hold a procedural vote on the new plan later this week.  House Republicans are working on another alternative payroll tax cut plan.

Senator Casey’s plan:

  • "Reduces The Size Of Package By Roughly One-Third. To address Republican concerns that the overall package was too large, the compromise legislation will no longer provide any tax break for employers. This will cut the size of the package by roughly one-third, from $265 billion to $185 billion. The Casey compromise still cuts in half (from 6.2% to 3.1%) the Social Security payroll tax paid by employees and the self-employed on their wages and salaries for 2012. Approximately 160 million workers will benefit from this tax cut, with the average family seeing nearly $1,500 in additional take-home pay.
  • To Help Pay for the Bill, Adopts Bipartisan Deficit-Reducing Proposals from The Super Committee Negotiations. This proposal will increase the fees that Fannie Mae and Freddie Mac charge mortgage lenders to guarantee repayment of new mortgage loans. The amount of the increase shall be determined by the Director of the Enterprises but such amount shall not be less than an average increase of 12.5 basis points for each origination year or book year above the average fee imposed in 2011 for such guarantees. These reforms will raise $38.1 billion.
  • Significantly Curtails the Surtax on the Wealthiest Few.  The Casey compromise further modifies the millionaires’ surtax to appeal to even more Republicans. First, it pares down the surtax on modified adjusted gross income in excess of $1 million from 3.25% to 1.9%. The surtax is also made temporary—it would expire after 10 years—instead of permanent. The surtax—which will impact only 0.2% of taxpayers with an average annual income of nearly $3 million—is effective for taxable years beginning after December 31, 2012.
  • Adopts GOP Proposal To Cut Off Millionaires From Receiving Unemployment Benefits and Food Stamps. The compromise bill includes a cost-saving reform proposed by Senate Republican Leader Mitch McConnell last week that would make millionaires ineligible for unemployment compensation and food stamps."
  • Casey said, "As the clock continues to tick down, it is imperative that we come together now on a middle income tax cut.  The legislation is fully paid for and includes measures that have received bipartisan support in the past. . . . We can no longer afford to jeopardize working families in order to protect the wealthiest few."
  • Senate Majority Harry Reid said, "Republicans need to be prepared to meet us partway.  We’re offering a serious proposal with meaningful concessions, including spending cuts to which Republicans have already agreed.  The scaled-back temporary tax on the richest Americans, a group with an average income of $3 million a year, is also a sincere attempt to get Republicans on board to pass what they say they want to do."
  • Today, Obama said, "As soon as this year ends, so does that tax cut. There aren't many folks, neither in the middle class or those trying to get into the middle class, who can afford to give up $1,000 right now. That's why Congress must act."  Obama added, "I'm willing to work with Republicans to extend the payroll tax cut in a responsible way. What I'm not willing to do is to pay for the extension in a way that actually hurts the economy."

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