Competing Payroll Tax Cut Bills Fail to Advance, Sets Stage for Possible Compromise

Neither side of the Senate was able to muster the 60 votes needed to advance their respective payroll tax cut bills on Thursday. The Middle Class Tax Cut Act of 2011 (S. 1917) introduced by Sen. Robert Casey (D-PA) failed by a 51-49 vote margin, while the Republican countermeasure introduced by Sen. Dean Heller (R-NV), the Temporary Tax Holiday and Government Reduction Act (S. 1931), failed by a vote of 20 – 78.

While both bills would have extended the payroll tax cut set to expire at the end of the year, the measures differed in how to pay for this tax break. The Middle Class Tax Cut Act would have reduced from 6.2% to 3.1% the Social Security payroll tax paid by employers on the first $5 million of taxable payroll for 2012. Under the current tax holiday, this tax rate is set at 4.2%. In addition, the bill would have eliminated the Social Security payroll tax paid by employers on the first $12.5 million of an employer’s increased taxable payroll for the 4th quarter of 2011 and $50 million in increased payroll for 2012 as an incentive to promote hiring. The cost of these changes would be offset by a 3.25% tax on individuals making more than $1 million.

In contrast, the Temporary Tax Holiday and Government Reduction Act would have extended the current temporary payroll tax holiday for one year primarily by reducing the size of the federal workforce and extending the current federal employee pay freeze for three additional years.

The popularity of the tax holiday increases the likelihood that a bipartisan compromise will be reached before the benefit expires.

Photo credit:  MBPHOTO, Inc.