Does the Payroll-Tax Cut Stand a Chance?

Illustration for article titled Does the Payroll-Tax Cut Stand a Chance?

In a strikingly populist speech in Kansas on Tuesday, President Obama posited that the United States has a choice: to be a country in which a few do well while everyone else struggles to get by, or one where "we still have a stake in each other's success."


Among several other policy pitches involving the plight of the poor and middle class, the president called on Congress to extend his payroll-tax cut. Through last year's reduction of the payroll-tax rate from 6.2 percent to 4.2 percent, working Americans received on average an extra $20 per paycheck, or $1,000 a year for the typical family. Although the cut expires on Dec. 31, dueling proposals failed to pass the Senate last week.

Unsurprisingly, Republicans voted against the Democratic bill to increase the tax cut to 3.1 percent and extend it to employers, offset by a 3.25 percent surtax on Americans making more than $1 million per year. In turn, Democrats voted against the Republican bill to extend the existing tax cut at 4.2 percent, paired with a pay freeze for federal workers through 2015, cutting 10 percent of the federal workforce, and denying certain government benefits to people who earn more than $1 million a year. Further complicating matters, a majority of Republicans also voted against the Republican plan.

Senate Democrats have since offered a revised proposal to possibly draw GOP support, with Republicans expected to offer their own update this week. So does the extension of the payroll-tax cut stand a chance? Valerie Jarrett, White House senior adviser, talked with The Root about her take on the measure's probability, the trouble with those anti-tax oaths and why she thinks the president's slam against the wealth gap is nothing new.

The Root: Although the president mentioned familiar policies, his Kansas speech has been seen as his most forceful words to date about economic inequality and the plight of the poor and middle class. Is that an accurate assessment, that there's been a shift in tone?

Valerie Jarrett: I think his tone has been consistent. Today what he was able to do, though, was to take a step back from the policies and really talk about our values and who we want to be as a country. Going back to Osawatomie, Kan., had historic significance, since President Roosevelt gave a speech there about the New Nationalism a little over 100 years ago. A lot of those basic values embodied in President Roosevelt's speech should be true today.

The president described a country where everyone gets a fair chance, where everyone has the opportunity to succeed and where each generation should do better than the generation before. That's the American dream, and for too many years now, that dream has seemed out of reach for so many Americans. The people who are the wealthiest are seeing their incomes and investments grow substantially, and everybody else is struggling to make ends meet.


I think the message was really one about, "We are all in this together": Business will succeed if there's a strong working class that can purchase goods and services from companies. It was an opportunity to really remind the American people about what makes our country so great.

TR: In terms of immediate solutions, the president urged Congress to extend the payroll tax cut before Dec. 31. How big would the economic impact be if it is not extended?


VJ: Well, let's make it very personal. The average family that earns $50,000 a year will have $1,000 less in their pocket next year, starting Jan. 1. That is a lot of money to hardworking Americans. The frustration is that the Republicans have taken a pledge not to raise taxes, and they have resisted all of our efforts to move forward with so many elements of the American Jobs Act because our proposal was to pay for it through a modest increase in taxes on the very wealthy.

They were unwilling to do that, yet they're willing to see hardworking Americans who desperately need that $1,000 and who will spend that $1,000 to help jolt our economy — they're willing to turn a cold shoulder to so many people across our country. That just doesn't make sense.


TR: One of the concerns stated by some Republicans is that extending the payroll-tax cut will undermine the Social Security trust fund. Can you speak to that concern?

VJ: That's simply not true. The administrators of the trust fund have said that's not true. AARP has said that's not true. The trust fund would be replenished from the general fund; it's just absolutely untrue.


TR: Even though the president has cut taxes, he's been framed by his opponents as someone who raises taxes on Americans —

VJ: That's simply not true, either. [Laughs.]

TR: Well, that framing is based on the ideas that he expressed in his Kansas speech, about the wealthiest Americans paying their fair share. Does the White House at this point have any concern about more backlash and being seen as a tax raiser?


VJ: I think today was an opportunity for the president to set forth his vision for America very clearly. His record is one of reducing taxes, particularly for small businesses that are the backbone of our communities — 18 different tax cuts for small businesses in the last three years.

The president has been very clear that what he's talking about is raising taxes only on the wealthiest Americans. And if you speak with many of our wealthy Americans, they agree that they're prepared to pay more because the money goes to invest in education and infrastructure and innovation, all of which makes America strong.


That's the president's vision for our country. It's one of balance, it's one of fairness and equity, and it's one where everybody understands their responsibility not just to themselves but to one another.

TR: With just a few weeks left, do you think that Congress will pass an extension of the payroll-tax cut?


VJ: I think that they should. And I think that the American people stand firmly behind the payroll-tax cut. It will benefit every American. The idea that a very few will pay modestly more, and that will enable the vast majority of Americans to have this extra $1,000 in their pocket — I mean, the mass speaks for itself. It's very sound policy.

The president's message is, "Congress, please step up and do your jobs." For the Republicans in Congress who have taken this pledge not to raise taxes, why would they ignore their oath when it comes to the middle class, and simply honor it when it comes to the very wealthy? It just doesn't seem fair.


Cynthia Gordy is The Root's Washington reporter.