Extend Tax Holiday, Freeze Federal Wages: Sen. Hutchison

The best way to pay for a payroll tax extension is to freeze hiring and salaries of federal workers, said Texas Sen. Kay Bailey Hutchison.

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That would include freezing the paychecks of the entire U.S. Congress, the Republican senator told CNBC Tuesday.

"We need to try to find a way to have the payroll tax holiday but also to pay for it," she said. "We just can’t add to the burden of Social Security or the deficit, so we’ve got to find a way to pay for it that’s responsible, and that’s really the problem now."

Hutchison, who said earlier this year she won't seek another term, also said the program can be paid for by blocking anyone making $1 million or more from being able to file for unemployment compensation, food stamps or other entitlements.

The tax holiday, enacted a year ago as a way of stimulating the economy, will expire Dec. 31 unless Congress extends it. Last week the Senate defeated competing versions of the bill while the Republicans in the House of Representatives are divided over whether the extension is needed.

President Obama wants to pay for the extension with a 1.9 percent surtax on millionaires, which Hutchison said will "scare small businesses into thinking there are going to be more taxes, and then they freeze hiring. That’s exactly what’s happening right now."