Democrats See an Advantage in Debate Over Payroll Tax

Jackie Calmes|The New York Times

After struggling all year for an economic message that resonates broadly with Americans in hard times, President Obama and Congressional Democrats have settled on one they believe can carry through next year’s election as they use a fight over payroll taxes to portray Republicans as defenders of the wealthy at the expense of the middle class.

With Mr. Obama leading the charge in Washington and political swing states, Senate Democrats have put proudly antitax Republicans in the position of opposing a tax cut for more than 160 million mostly middle-class Americans because they object that it includes a tax on about 350,000 people, those with more than $1 million in annual taxable income.

Votes late on Thursday left the issue at an impasse. The Senate voted 51 to 49 for Democrats’ measure to further reduce Social Security payroll taxes next year for both workers and employers and to impose the surtax, but the tally was short of the 60 votes needed. One moderate Republican, Senator Susan Collins of Maine, supported it. A Republican alternative, which would have extended the current more modest tax cut and slashed the federal payroll to pay for it, was rejected 78 to 20, with more than half of Republicans opposed.

The maneuvering suggests that the parties will agree to some continued relief before the current payroll tax cut expires on Dec. 31. But how much of a cut and how — or if — it will be paid for remain to be settled, with some in both parties saying that the tax break would further weaken the Social Security system’s financing.

But politically, Democrats believe that they have already won this latest skirmish in the message wars. And some exasperated Republicans acknowledge that they are losing the exchange; party leaders have worked this week to bring the rank and file in line behind the tax cut.

Democrats have concluded from the payroll tax debate that Republicans are vulnerable over their opposition to any new taxes on the wealthy in a way they were not when Democrats proposed such taxes for deficit reduction. So they have reprised an old message — that Democrats fight for the middle class, Republicans for the rich — and are likely to sound it through 2012, in hopes of blunting the headwinds they face as unemployment remains high.

“Tonight, Senate Republicans chose to raise taxes on nearly 160 million hard-working Americans because they refused to ask a few hundred thousand millionaires and billionaires to pay their fair share,” Mr. Obama said in a statement after the first Senate vote.

It was the same message he delivered on Wednesday, in anticipation of the Senate action, both in speeches to a crowd in blue-collar Scranton, Pa., and later to affluent donors in New York. In Scranton, speaking as if to Republicans, he asked, “Are you willing to fight as hard for middle-class families as you do for those who are most fortunate?  What’s it going to be?”

Mr. Obama, in setting this debate in motion in September, when he introduced his job-creation plan, has tapped into the widespread sense of income inequality — fighting for “the 99 percent” — that gave rise to the Occupy Wall Street movement. But Democrats would not be in their current strong position but for the fact that Republicans, for the first time in memory, contested a tax cut and then insisted that the reductions be paid for.

“This would have been unheard of even six months ago,” said Senator Charles E. Schumer, Democrat of New York. “But we are changing the debate, and the public is with us.”

Mr. Schumer read to reporters from RedState.com, a Web site popular among conservatives, where a blogger, Erick Erickson, wrote, “I never thought I would see the day, but Democrats are outmaneuvering Republicans on a tax cut.”

“Like clockwork, the G.O.P. is throwing the ball into the Democrats’ basket for them,” Mr. Erickson said.

Republican leaders’ struggle this week to find a strategy that could unite their party reflected the political bind it is in. Nearly 7 in 10 Americans said the policies of Republicans in Congress favored the rich, a New York Times/CBS News poll found in October.

In a memo to Senate Democrats last week, the party pollster Geoff Garin cited other recent surveys to argue that concern about income inequality and the perceived decline of the middle class is trumping the antigovernment fervor that defined last year’s Congressional midterm election and allowed Republicans to take control of the House. He said that sets up a 2012 election that is fundamentally different.

Where the public stands

“There is very broad support in the electorate for having millionaires pay more in taxes to help address the country’s needs,” Mr. Garin said. “The bottom line is, Republicans are on the wrong side of public opinion.”

But David Winston, a Republican pollster who advises House leaders, noted that Mr. Obama continued to get low ratings for his handling of the economy.

The Payroll Tax & Congress

“How does this create jobs and grow the economy?” he said. “That’s the question people want answered. So whatever it is they’re saying, they need to think through, is it answering that question?”

The answer is yes in the case of the payroll tax cut, Democrats say, citing economic forecasters.

Reducing the employee’s share of payroll taxes from its current 4.2 percent to 3.1 percent — the tax is usually 6.2 percent — and extending it to employers would spur enough new consumer spending to add about 750,000 jobs, according to Moody’s Analytics. That assumes the tax cut is offset by the proposed surtax on millionaires, beginning in 2013.

The one-year payroll tax cut and a separate tax credit that Democrats have proposed for small businesses that add workers would cost $265 billion, according to Congressional analysts. The surtax would raise $267.5 billion over 10 years.

As the week began, Republicans opposed extending a payroll tax cut, according to Senator Jon Kyl of Arizona, the Senate’s No. 2 Republican leader. “The payroll tax holiday has not stimulated job creation,” he said on “Fox News Sunday.” “We don’t think that is a good way to do it.”

But by Tuesday, with some Republicans publicly taking issue with that stance, Senator Mitch McConnell of Kentucky, the Republican leader, said his party would support an extension of the payroll tax cut — but not an expansion or small business credit and definitely not a surtax on millionaires. On Wednesday Republicans proposed to offset the $121.2 billion cost by freezing pay for federal civilian workers through 2015 and cutting the federal work force by 10 percent.

“There’s no reason folks should suffer even more than they already are from the president’s failure to turn this jobs crisis around,” Mr. McConnell said.

He and other Republicans say the surtax would hurt many “job creators” among small businesses. Treasury Secretary Timothy F. Geithner, citing a Treasury study, said less than 1 percent of taxpayers who would pay the surtax were small businesses.