The Senate late Thursday rejected competing partisan visions for extending a temporary tax break that benefits virtually every American worker, clearing the way for more serious negotiations over how to cover the cost of the tax cut.
All but a handful of Democrats voted in favor of their party’s proposal, but in a surprising turn, more Republicans voted against the GOP plan than in favor of it. Senate Minority Leader Mitch McConnell (R-Ky.) predicted this week that a majority of his conference would vote for the party’s plan to extend the payroll tax cut.
The vote suggests that rank-and-file Republicans remain divided on the merits of keeping the tax cut, leaving their party vulnerable to criticism from Democrats that they would raise taxes on the middle class as Americans are struggling economically.
President Obama and lawmakers have been sparring over the tax break, which reduced the payroll tax rate from 6.2 percent to 4.2 percent this year and is set to expire Dec. 31.
Congressional leaders in both parties agree that the tax break should be extended to avoid harming the fragile economic recovery, but they are arguing over how to replace the lost revenue and avoid increasing the federal budget deficit.
Democrats proposed a 3.25 percent tax on income over $1 million, which would raise sufficient cash to increase the tax cut to 3.1 percent and expand it to cover employers, as Obama has proposed. But that idea failed late Thursday to muster the 60 votes needed to overcome a GOP filibuster threat, with 51 senators supporting it and 49 opposed.
Some Democrats voted against the measure, in part because the tax cut eats into the dedicated financing stream for Social Security, forcing the program to rely on congressional appropriations to cover the cost of benefits.
“At a time when our nation faces a death spiral of debt . . . it is the wrong policy,” Sen. Joe Manchin (D-W.Va.) said in a statement. “It is wrong for our seniors and it is wrong for our future, and I will not vote for it. Period.”
Republicans, for their part, offered a simple extension of the existing tax break paired with a proposal to freeze pay for federal employees through 2015, trim 10 percent from the federal workforce and deny certain government benefits to people who earn more than $1 million a year. Those provisions would generate enough savings to pay for the tax cut and reduce deficits over the next decade by more than $110 billion.
But that measure also failed to move forward, with 78 senators opposed and 20 in favor.
Democrats accused the GOP of trying to protect millionaires at the expense of dedicated government workers.
“If they’re nameless and faceless federal employees it’s one thing. But if it happens to be the FBI agent who’s in the midst of a very important investigation to keep this country safe, it’s another,” Sen. Richard J. Durbin (D-Ill.) said. “Those are the people whose jobs they would do away with for the payroll tax cut because they can’t bring themselves to raise taxes on the wealthiest people in America by one penny.”
Some Republicans argued that the extension was the wrong step at the wrong time and that the move would threaten the solvency of Social Security.
“This extension is yet another example of Washington’s benefit now, pay later mentality, and it moves us further away from solving our long-term spending and deficit problems,” Sen. Bob Corker (R-Tenn.) said in a statement.
Even as the Senate dispatched with the dueling measures, bipartisan talks were underway over how to extend the existing tax cut, though aides said Obama’s proposed expansion appeared unlikely. Negotiators were also aiming to reach agreement on two other expiring provisions. Emergency unemployment benefits, which provide up to 99 weeks of income support, are set to expire Dec. 31. And doctors will absorb a 30 percent reduction in Medicare reimbursements starting in January unless Congress acts.