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Posted at 05:25 PM ET, 11/30/2011

GOP payroll tax cut proposal includes federal pay freeze, benefit reductions for high-earners


Senate Minority Leader Mitch McConnell (R-Ky.) speaks at a news conference on Capitol Hil. (AP Photo/Jacquelyn Martin)

Senate Republicans on Wednesday unveiled their plan for extending a one-year payroll-tax cut, a high-profile piece of unfinished business that Congress must address before the year is out.

Responding to a plan by Senate Democrats to pay for the payroll tax holiday by enacting a surtax on wealthy individuals, Republicans outlined a counter-proposal that would extend the current two-year pay freeze for federal workers by three extra years, trim the federal workforce by 10 percent and means test programs such as Medicare and unemployment insurance so that benefits are reduced for higher earners.

The GOP proposal, which was introduced by Sen. Dean Heller (R-Nev.), also includes a provision by Sen. John Thune (R-S.D.) that Republicans say “makes it easy for millionaires like Warren Buffett who want to pay more taxes to reduce the federal deficit with a voluntary contribution via their tax returns.”

Republicans said that the plan would not raise taxes and that, according to the nonpartisan Congressional Budget Office, it would reduce the deficit by $111 billion. They also highlighted the fact that several of the provisions are drawn from the report of the bipartisan Simpson-Bowles commission, which would reduce deficits by $4 trillion over the next decade.

The Simpson-Bowles plan also called for tax increases, however – a point that Rep. Chris Van Hollen (D-Md.) made in opposing the GOP proposal.

Van Hollen said that federal workers “had nothing to do” with the country’s fiscal mess and that this GOP proposal is “cherry picking the stuff that they want” from Simpson-Bowles proposal.

“This is an attempt to single out and scapegoat federal employees. ... These are not the people who are responsible for the economic downturn,” he said.

In a statement Wednesday night, Senate Majority Leader Harry Reid’s (D-Nev.) office hailed Republican leaders’ move the back the payroll tax extension but argued that the Democratic proposal would be of greater benefit to the middle class.

“We are glad Republicans have seen the light and taken up Democrats’ call to pass a middle-class tax cut, just a few days after their leadership indicated they would oppose it,” Reid spokesman Adam Jentleson said. “However, Democrats’ proposal would put more money in the pockets of middle class families and create more jobs. The Republican proposal cannot pass the Senate as it stands, but now that Republicans have reversed their position on this middle-class tax cut, we look forward to working with them to negotiate a consensus solution.”

Federal employees’ unions were harsher in their criticism of the plan. National Treasury Employees Union President Colleen Kelley slammed the GOP proposal, arguing that it “makes clear that Senate Republicans stand firmly on the side of the wealthiest Americans and are turning their backs on middle class families.”

“Federal employees are already under a two-year pay freeze,” Kelley said in a statement. “Continually freezing federal pay farther and farther into the future and cutting agencies that provide needed services to the public without asking the wealthiest Americans to share in the sacrifice at all is not what the majority of Americans support.”

The Senate is expected to vote as early as Friday on the payroll tax extension. The White House, which had kept its distance from Congress throughout the debt-reduction supercommittee negotiations over the past few months, has taken an active role in the payroll tax debate, and President Obama on Wednesday renewed his call for Congress to pass the extension.

Previous payroll tax cut extensions have received bipartisan support, although some members of both parties have expressed reservations about cutting into the strea of revenue used to fund Social Security, while others have argued that the tax holiday would not benefit the economy.

As the most recent debate has heated up, congressional leaders have rallied to support an extension, with the main difference between both parties now resting in how to pay for the $265 billion cut.

Correction: An earlier version of this article misstated the length of time by which the Senate Republican proposal would extend a federal worker pay freeze; the freeze would be extended by three years, not one.

The Federal Eye’s Ed O’Keefe and staff writer Paul Kane contributed to this report.

By  |  05:25 PM ET, 11/30/2011

 
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