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GOP shifts away from payroll tax cut

Brown bucks party on jobs plan ideas

By Theo Emery
Globe Staff / September 26, 2011

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WASHINGTON - As applause broke out in the House chamber, Scott P. Brown rose to his feet to join an ovation for President Obama. But the enthusiasm came from just half the chamber - the Democratic side - and the lanky GOP senator from Massachusetts was a lonely figure standing in a sea of seated, stony-faced Republicans.

The one-sided ovation during Obama’s Sept. 8 speech pitching his $447 billion jobs plan came after the president proposed extending last year’s payroll tax cut, an idea that had once garnered bipartisan support but this year has received a tepid reception from many Republicans.

House Speaker John A. Boehner has hinted the GOP should keep an open mind on the payroll tax part of the overall plan. Others in his party, however, have questioned its effectiveness and timing or criticized its temporary nature in rejecting out of hand a proposal they once embraced.

Some observers attribute such a change of heart not to questions of its economic efficacy but to politics.

“What has changed about the idea? Nothing, really,’’ said Richard K. Kaplan, a tax law professor at the University of Illinois. What has changed, he said, is a Congress that is more polarized and vituperative, with an upcoming election prompting Republicans to oppose any proposal that might boost Obama.

“It’s not much more sophisticated than ‘I’m against it, because he’s for it,’ ’’ Kaplan said.

Payroll taxes are traditionally paid equally by employers and workers, with the money funneled into the Social Security trust fund. Making the tax the centerpiece of his jobs plan, Obama would expand and extend the cut in the rate for workers - which was passed last year with support from GOP leaders. That would allow an average household to keep about $1,500 from its paychecks, according to the White House.

The portion paid by small businesses would shrink; for new workers or raises, it would be eliminated. The goal is to keep some $240 billion circulating in the economy, while giving small businesses incentives to hire. General revenues would be used to replenish the Social Security fund. For Brown, supporting the provision was easy because business owners across Massachusetts have urged him to back it. He brushes off the political dimensions of the debate.

“When the president brought [the payroll tax holiday] up and the hiring of veterans and being able to refinance your mortgage if you’re having difficulty - those are all things that make complete sense to me,’’ Brown said, speaking also about other elements of the plan. “There are certain things we all agree on, Democrats and Republicans. I’ve said, let’s bang those things out right away - let’s get them done.’’

In the past, Brown’s call would be echoed by top Republicans. In 2001, members of both parties voiced support for temporary payroll tax cuts, including two top Senate Republicans, Trent Lott of Mississippi and Don Nickles of Oklahoma. An unsuccessful Senate bill that year proposing such a cut had sponsors from both parties, including John F. Kerry, a Massachusetts Democrat.

Today, Brown is a lonely figure among his party in enthusiastically backing the proposal.

“It’s going to add to the deficit, and it’s not going to create any jobs,’’ said Senator Orrin G. Hatch, a Utah Republican who as recently as last year worked with Senator Charles E. Schumer, Democrat of New York, on legislation that included a more modest payroll tax holiday aimed at employers. Hatch said his proposal was significantly different than Obama’s.

Senator John Thune, a South Dakota Republican, supported a 2009 GOP stimulus proposal that included a payroll tax reduction. Thune acknowledged that many Republicans have supported such proposals, but “the times have changed,’’ he said.

“The budgetary situation is so much worse than it was then. We have to think long and hard if we’re going to be borrowing money to do some kind of job creation or stimulus bill,’’ he said.

A possible Republican ally for Obama on this issue was Boehner, who joined other GOP leaders in a memo to House Republicans earlier this month that included the tax holiday among elements of the jobs plan “worthy of further discussion.’’

Late last week, however, Boehner did not mention the payroll tax as he ticked off areas of common ground with the president. Asked why Republicans who once supported it don’t embrace it now, he cited concerns about what it means for entitlements “and whether it really does in fact help the economy.’’

Many economists see the payroll tax cuts as a kind of chicken soup remedy for the ailing economy - one that can’t hurt and might help. It could mildly boost the economy by putting extra money into the pockets of employees, with a greater benefit going to low- and middle-income workers.

That’s because the taxes are only implemented on the first $106,000 of a worker’s salary.

There’s wide disagreement about how big an impact it will have on hiring. Mark Zandi, chief economist of Moody’s Analytics, estimated that it would add 1.9 million jobs and 2 percentage points to gross domestic product growth next year.

Donald Marron, director of the Tax Policy Center at the liberal Urban Institute in Washington, said he believes it makes sense to extend the policy and “make it a little bigger,’’ given the depth and length of the economic struggles.

For some Republicans, the temporary nature of the cut is troubling.

They now equate the expiration of a tax break to a tax increase, a concept they have used to their advantage in urging the continuation of the tax cuts for the wealthy under President George W. Bush.

Wary of being painted with the same brush that they’ve used against Democrats, Republicans find themselves in a tough spot. Curtis Dubay, the senior tax policy analyst at the Heritage Foundation, a conservative Washington think tank, said Republicans are “not going to want to be on that side of the debate.’’

“The easiest thing for them would be to just extend it for another year. But when you do that, you’re buying into the logic - you’re saying it will create jobs, and they know it won’t,’’ he said.

His organization has been a leading opponent of the president’s plan, but criticism of the payroll tax holiday isn’t limited to conservatives.

Some on the left argue that tinkering with Social Security’s formula will open the door to more radical changes.

With the 2012 election season rapidly approaching, political dimensions loom large. If the payroll cut is approved and works, it could boost Obama’s reelection prospects. That colors some perspectives, analysts contend.

“If the last 2 1/2 years have taught us anything, it’s that the conservatives in Congress are absolutely willing to go back on positions they’ve long held if the president decides to embrace those positions,’’ said Michael Linden, director for tax and budget policy at the Center for American Progress, a Washington think tank closely aligned with the White House.

Senator Lindsey O. Graham of South Carolina, one of the Republicans who has supported cutting the payroll tax, dismisses that notion.

“I don’t want to say no just because it’s his idea - because it was actually our idea,’’ he said.

Unlike many of his brethren, Graham said he would be willing to work with the president on the tax cut but not other elements of the plan.

“It’s a proposal we could build consensus around, but his package is dead on arrival,’’ he said.

Theo Emery can be reached at temery@globe.com. Follow him on Twitter @temery.