Payroll tax cut is likely topic for debate when Congress resumes session

Extending last year's payroll tax cut is a likely debate when Congress returns to session next week.

The extension is a key part of President Barack Obama's focus on creating jobs, but was not included in the deal that covered the debt ceiling.

Last December, Congress cut payroll taxes from 6.2 percent to 4.2 percent for one year. Those are the taxes which pay for Social Security

Some of Minnesota's delegation discuss their concerns and speculate whether Republicans are likely to agree with the president on this issue.

At the Minnesota State Fair, DFL Sen. Al Franken differentiated the payroll tax cut from Pres. George W. Bush's tax cuts for high income earners, which were also extended at that time.

"It's really a tax cut for people at the bottom," Franken said. "We need to have that money out in the economy. It creates demand, which creates jobs and right now we need jobs."

With the economy still weak and Congress divided, Democrats view extending tax cuts as their only hope for more economic stimulus before next year's election.

But special-interest groups on both sides of the political spectrum said there's very little evidence that Americans have spent the extra money in their paychecks.

While Republicans regularly call for tax cuts to goose the economy, they now have doubts about broadly-targeted short-term measures like this one.

"You know, I think we saw this with George Bush's tax rebates — it didn't stimulate the economy," said GOP Congressman Erik Paulsen, who sits on the tax writing Ways and Means Committee.

Paulsen voted for the payroll tax cut last December. This time around, he's not sure.

"I'm hesitant to support a simple extension of this tax cut because I'm not convinced it's going to result in meaningful employment for folks," Paulsen said. "I'm concerned we're not going to see that going forward. I'd much rather have a longer term solution."

In response, Democrats have ripped a page straight from the GOP playbook, arguing that if Republicans don't extend the payroll tax cut, they're raising taxes on the middle class.

They've also honed in on pledges that most Republicans in Congress have made to Washington tax activist Grover Norquist to never vote for a tax increase.

"If you're like 3.1 million Minnesotans and you pay a payroll tax on most of what you earn, these self-proclaimed anti-tax Republicans want to raise your taxes," DFL Party Chairman Ken Martin told reporters last week.

As intended, the Democrats' call to extend the payroll tax reduction has put in an awkward position Republicans &mdash such as Congressman John Kline — who also voted for the tax cut last December.

"I don't want to say flat out that I wouldn't support it, because it's very hard for me to say I don't support tax relief, but I don't like this way of doing it," Kline said.

One reason for Kline's discomfort is that the tax cut will divert about $110 billion dollars from Social Security, which he fears will weaken the system just as baby boomers are retiring.

Republican opposition to keeping the tax cut in place has left Democrats, including Franken, a bit frustrated.

"Getting rid of this, by their definition, is a tax increase," Franken said. "So I don't get it."

While both parties are spar over the issue, a special bipartisan joint House and Senate committee considers longer-term ways to cut the budget deficit.

And it's entirely possible that the committee will be the one to decide whether this is a tax cut worth keeping.