* Senate vote with tax on rich seen failing this week
* Reid envisions multiple attempts to extend payroll tax
* Democrats seeks to expand payroll tax cut for workers
By Richard Cowan
WASHINGTON, Nov 28 Democrats and Republicans in
the U.S. Congress on Monday exchanged their first blows in a
battle over extending a payroll tax cut for workers, the latest
in a series of polarizing fights that has worried investors.
Democratic Senate Majority Leader Harry Reid warned that
failure to continue the tax holiday would hurt U.S. economic
growth and could, according to some economists, push the
country back into recession.
The payroll tax cut for workers that went into effect at
the beginning of 2011 has put about $1,000 in the average
worker's pocket and helped to shore up consumer spending.
The Senate could vote on a measure extending and expanding
it as early as Thursday, according to Democratic aides. The
$255 billion cost of the legislation would be paid for with a
new 3.25 percent tax on income over $1 million a year.
Republicans are expected to block it, in part because of
the tax on the wealthy that they say will stifle job creation.
Senate Republican leader Mitch McConnell said Democrats
should schedule votes on measures that have bipartisan support,
instead of "symbolic show-votes that we know won't lead to
anything except more tension and political acrimony."
The two parties have battled fiercely this year over the
best way to improve the struggling U.S. economy and create jobs
to reduce a 9 percent unemployment rate.
The acrimonious debates brought the United States to the
brink of a first-ever debt default in August and stalled
negotiations last week on a deficit reduction plan aimed at
slowing the growth of the country's $15 trillion debt burden.
Fitch Ratings on Monday gave the United States until 2013
to come up with a "credible plan" to tackle its ballooning
deficits or face the downgrade of its coveted AAA rating.
Some economists have warned that letting the payroll tax
cut lapse could shave anywhere from 0.75 of a percentage point
to 1.5 percentage points from economic growth. The latest
economic data show that the U.S. economy grew at a 2 percent
annual rate from July through September.
"The potential impact on the larger economy is downright
scary," Reid said on the Senate floor.
Reid will have to find a way to gain enough support from
Republicans, who are wary about allowing the tax cut for wage
earners to expire ahead of the 2012 elections but do not want
to add to already huge U.S. budget deficits.
MULTIPLE SENATE VOTES EXPECTED
If Democrats fail to win passage in the Senate this week,
Reid said he would push for additional votes in December,
before the current session of Congress comes to an end.
"We are not going to let this lapse," he said, predicting
it could take up to three tries to pass a payroll tax cut
Reid refused to comment to reporters when asked whether
future versions of the legislation could try to pay for the tax
cuts without targeting the very wealthy.
A Senate Democratic aide raised the idea of using future
savings from U.S. troop withdrawals from Iraq and Afghanistan
to help defray the cost of lowering the payroll tax. Using such
future savings for current economic stimulus was discussed in
the deficit-reduction negotiations that collapsed last week.
The current payroll tax cut that is set to expire on Dec.
31 reduced workers' taxes, which are used to fund the Social
Security retirement program, to 4.2 percent, from 6.2 percent.
Now, Democrats want to pare it back to 3.1 percent to put
$1,500 in cash in the hands of about 120 million families.
Businesses would also get a tax holiday by cutting the 6.2
percent tax in half. To encourage more hiring, companies would
not have to pay any payroll tax on newly hired workers under
the Democratic plan.
While Republicans have either expressed opposition to
cutting the payroll tax or been tepid to renewing it, at least
one Republican said a deal was possible by year's end if it
does not increase taxes on the wealthiest.
Senator Patrick Toomey, interviewed Sunday on ABC's "This
Week" program, said, "I think probably some package of that
with other features might very well pass." But he did not
elaborate on a way to pay for a payroll tax cut he could