Senate Dems offer compromise on payroll break

Last week, Senate Republicans helped kill two different plans to extend the payroll tax break through 2012, one paid for with a surtax on millionaires and billionaires, one which relied on a freeze on federal workers’ salaries.

Today, Senate Democratic leaders offered a third alternative, built around a smaller tax break for American workers.

Democrats have reduced the $265 billion extension and expansion of the payroll tax cut, which failed last week in a vote largely along party lines, to a new proposal totaling $180 billion, according to a Democratic official familiar with the proposal.

The new proposal will extend and expand the payroll tax cut for workers, giving average families an extra $1,500 next year. Democrats have “reluctantly” decided to cut the payroll tax break for employers because of Republican concerns over its cost, said the official.

If it passes, workers would see their payroll taxes drop another one and a tenth percentage points, cutting the tax by 3.1 percentage points compared to 2010.

Dems, including the White House, had hoped for a bigger extension, in the hopes that more money in workers’ pockets would lead to stronger demand. With Republicans objecting, Democrats have shrunk the tax break, as well as shrinking the surtax on the very wealthy from 3.25% to less than 2%.

And to sweeten the pot a little more for the GOP, the surtax will expire, rather than be made permanent. (A leading Republican criticism is that the Dems’ plan would combine a temporary tax break with a permanent tax increase.)

Brian Beutler has some additional details on the proposal, including Democrats’ willingness to adopt the Republican provision on means-testing for unemployment aid and food stamps.

The idea, of course, is to make the plan at least somewhat more enticing to GOP lawmakers — Sen. Susan Collins of Maine was the only Republican to back the Dems’ plan last week — so that the agreement could be approved relatively soon.

If I were a betting man, I’d say the GOP will balk at the compromise anyway, because any plan that asks millionaires and billionaires to pay even a penny more is necessarily a bad idea to the vast majority of Republican lawmakers.

And if that’s the case, we can expect the GOP to kill the payroll tax break for a third time fairly soon, though I’d be delighted if Republicans proved me wrong.