WASHINGTON (AP) - President Barack Obama
isn't talking about it and neither is Mitt Romney. But come January, 163
million workers can expect to feel the pinch of a big tax increase
regardless of who wins the election.
A temporary reduction in
Social Security payroll taxes is due to expire at the end of the year
and hardly anyone in Washington is pushing to extend it. Neither Obama
nor Romney has proposed an extension, and it probably wouldn't get
through Congress anyway, with lawmakers in both parties down on the
idea.
Even Republicans who have
sworn off tax increases have little appetite to prevent one that will
cost a typical worker about $1,000 a year, and two-earner family with
six-figure incomes as much as $4,500.
Why are so many politicians sour on continuing the payroll tax break?
Republicans question
whether reducing the tax two years ago has done much to stimulate the
sluggish economy. Politicians from both parties say they are concerned
that it threatens the independent revenue stream that funds Social
Security.
They are backed by powerful advocates for seniors, including AARP, who adamantly oppose any extension.
"The payroll tax holiday
was intended to be temporary and there is strong bipartisan support to
let that tax provision expire," said Sen. Orrin Hatch of Utah, the top
Republican on the Senate Finance Committee. "The continued extension of a
temporary payroll tax holiday has serious long-term implications for
Social Security and, frankly, it's not even clear that it has helped to
boost our ailing economy."
The question of renewing
the payroll tax cut has been overshadowed by the expiration of a much
bigger package of tax cuts first enacted under President George W. Bush.
The Bush-era tax cuts also expire at the end of the year, and Congress
is expected to try to address them after the election, in a lame-duck
session.
The payroll tax cut could
become part of the mix in negotiations that could go in many directions.
But lawmakers in both political parties say they doubt it.
"I think there's a growing
consensus that Congress and the president can't continue to divert such a
critical revenue stream from Social Security," said Rep. Kevin Brady of
Texas, a senior Republican on the tax-writing House Ways and Means
Committee. "I think more and more Americans understand that that
payroll tax cut, while politically appealing, is endangering Social
Security."
Before he was named as
Romney's running mate, Rep. Paul Ryan, R-Wis., disparaged the payroll
tax cut, calling it "sugar-high economics" that wouldn't promote
long-term growth.
Social Security is funded
by a 12.4 percent tax on wages up to $110,100, rising to $113,700 in
2013. Half is paid by employers and the other half is paid by workers.
For 2011 and 2012, Congress and Obama cut the share paid by workers from
6.2 percent to 4.2 percent.
A worker making $50,000 saved $1,000 a year, or a little more than $19 a week. A worker making $100,000 saved $2,000 a year.
The beauty of the tax cut
is that is shows up in weekly paychecks, giving workers more money to
spend or save. The downside is that some workers may not notice a
$19-a-week increase in pay, making them unlikely to credit the
politicians who made it happen.
Under the law, Congress is
reimbursing Social Security for the lost revenue, estimated at $103
billion in 2011 and $112 billion in 2012. But Congress didn't cut
spending or raise other taxes to offset the lost revenue, so the payroll
tax cut is being financed with borrowed money, adding to the national
debt.
Democrats are more willing
to defend the tax cut, saying it helped prop up the economy during a
rough stretch while providing what amounted to a 2 percent pay increase
to millions of middle-income workers. But they, too, are concerned about
maintaining Social Security's source of revenue.
"I think people realize that was a temporary thing," said Sen. Mark Begich, D-Alaska.
Rep. Richard Neal of
Massachusetts, a senior Democrat on the Ways and Means Committee, said
he thinks there is evidence that the tax cut helped the economy. But, he
added, "I'm not sure that it met expectations."
House Democratic leader Nancy Pelosi of California said she, too, wants to let the tax cut expire.
Larry Summers, Obama's
former economic adviser, is a lonely voice in Washington calling to
extend the payroll tax cut. He said in a recent speech that the economy
is too fragile to reduce workers' incomes.
Obama pushed for the tax
cut in late 2010 as a way to increase workers' take-home pay to help
boost consumer spending and provide a spark for the economy. Economists
were divided on the economic benefits. Many said it probably helped
increase consumer spending but there was no consensus on the magnitude.
The initial tax cut was for
only a year, and many Republicans in Congress wanted to let it lapse at
the end of 2011. But Obama and Democratic lawmakers successfully fought
to extend it through 2012.
Obama, however, didn't
include the tax cut in his 2013 budget proposal, and Treasury Secretary
Timothy Geithner told Congress this year that he saw no reason to extend
it again.
White House spokeswoman Amy Brundage wouldn't rule out an extension but wouldn't commit to one, either.
"The president fought
extremely hard last year in the face of Republican opposition to ensure
that the payroll tax cut was extended," Brundage said. "There are a
number of tax issues that Congress will have to deal with at the end of
the year, this being one of them, and we will continue to evaluate all
of the options available to us at that time."
Romney's campaign hammers
Obama almost every day for proposing to let Bush-era tax cuts expire for
individuals making more than $200,000 and married couples making more
than $250,000. But Romney's tax plan would let the payroll tax cut
expire, an issue he doesn't mention on the stump.
Romney's campaign declined to discuss the issue.
