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Senate Republicans propose payroll tax holiday

Domenici says his bill would help both business and individuals.
Domenici says his bill would help both business and individuals.  

By Dana Bash
CNN Washington Bureau

WASHINGTON (CNN) -- Senate Republicans are proposing a monthlong Social Security payroll tax holiday as part of a $100 billion economic stimulus package compromise.

The measure, authored by Sen. Pete Domenici, R-New Mexico, would eliminate the 12.4 percent Social Security payroll tax for one month. According to Domenici, the tax holiday would help both business and individuals because employers and employees each pay half, or 6.2 percent, of the tax.

"This is one way to have an effect on the economy next month that would help during the Christmas season and that would help the employees, lower-income, middle-income, upper-income and employers," said Senate Minority Leader Trent Lott, R-Mississippi.

Republicans estimate the cost of a one-month holiday at $38 billion, and promise that the Social Security trust fund would be fully replenished by general treasury funds.

The payroll tax holiday would replace a provision in the House-passed economic stimulus bill to send rebate checks to those who did not receive them this summer -- those who do not make enough to pay income tax but are still subject to payroll taxes.

Sen. John Breaux, D-Louisiana, a key player who has his own compromise plan, said he had concerns about the payroll tax holiday because there is no way to guarantee employers would pass the 6.2 percent tax cut onto employees.

Treasury Secretary Paul O'Neill, on Capitol Hill for meetings with Senate and House Republicans, said the idea was "administratively feasible," and suggested that "as part of the right (legislative) package, it is a good idea."

Democrats said they would consider the idea, but maintain that their $15 billion spending proposal for "homeland security" must be part of any negotiations for an economic recovery bill, a demand that has prevented compromise talks from even beginning because of GOP opposition to extra spending.

"We are willing to look at a lot of options including the Domenici payroll tax holiday. That's something that we would certainly be willing to consider," said Senate Majority Leader Tom Daschle, D-South Dakota, "but again, not at the expense of giving up all of our commitment to homeland security. What we hope they will do is tell us when we can sit down and talk about the entire package, not just a part of it."

Daschle told reporters Tuesday he would be willing to drop the $15 billion infrastructure spending proposal, sponsored by Sen. Robert Byrd, D-West Virginia, from the stimulus bill as long as Republicans allow Democrats to bring it up in the Defense Appropriations bill.

President Bush has promised to veto any spending beyond what has already been agreed to, and Republicans said Tuesday they will protect their president by putting up procedural roadblocks to Byrd's proposal.

In addition to $38 billion payroll tax holiday, Senate Republicans would repeal the corporate alternative minimum tax, which ensures that every company pays at least some income tax. The AMT was passed in 1986 as part of President Reagan's sweeping tax reform.

House Republicans favor repealing the AMT, and refunding billions of dollars that companies paid.

Democrats are opposed to any corporate AMT repeal, calling it a gift to big business.

Like the House-passed stimulus bill, the Senate Republican proposal would also accelerate marginal rate reduction of the 28 percent bracket to 25 percent.

It would also provide an additional 13 weeks of unemployment benefits to workers. Democrats want to give unemployment benefits to part-time workers who are not currently eligible.

The Senate GOP plan would give governors $5 billion in emergency block grants for those who have lost health insurance or other related assistance.

Democrats want to give direct payments to laid-off workers to help with COBRA premiums, saying there is no guarantee governors will use the federal funds for assistance with health insurance.


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