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Obama challenges Republicans on payroll tax cut

By Tom Cohen, CNN
updated 5:27 AM EST, Thu December 1, 2011
STORY HIGHLIGHTS
  • NEW: Republicans propose spending, benefit cuts to pay for payroll tax cut extension
  • A Democratic proposal would tax millionaires to pay for expanding the payroll tax cut
  • Republicans oppose such a surtax and offer an alternative plan
  • Failure to extend the payroll tax cut will cost average families about $1,000 a year

(CNN) -- President Barack Obama on Wednesday challenged Republicans to "fight as hard for middle-class families as you do for those who are more fortunate," telling a Pennsylvania crowd to push Congress to extend the payroll tax cut enacted a year ago.

Obama met with a family in Scranton, the birthplace of Vice President Joe Biden, then spoke at a nearby high school in what will be a battleground state in next year's presidential election.

Sounding the populist themes of his re-election bid so far, Obama complained that congressional Republicans were out of touch with mainstream American support for his jobs bill that included an extension of the payroll tax cut.

He noted Senate Republicans previously blocked debate on the plan, saying that "their actions lately don't reflect who we are as a people."

A loud cheer erupted when Obama described the Democratic proposal to extend and expand the reduced payroll tax rate by saying: "It is paid for by asking our wealthiest citizens to pay their fair share."

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Noting the hard-line Republican opposition in deficit reduction negotiations to any tax increases for the wealthy, Obama urged the audience to ask its elected representatives "are you willing to fight as hard for middle-class families as you do for those who are more fortunate?"

"Send your senators a message," Obama said to cheers. "Tell them don't be a grinch. Don't be a grinch. Don't vote to raise taxes on working American during the holidays."

Economists say the payroll tax cut -- part of a congressional spending deal negotiated last December -- has contributed to the nation's economic recovery.

Congressional Republicans have indicated support for extending the lower payroll tax rate for another year, but differ with Obama and Democrats on covering the more than $200 billion price tag.

A Democratic bill under consideration by the Senate would assess a 3.25% tax on income above $1 million a year to cover the cost.

Republicans reject any tax increases and offered their alternative later Wednesday, calling for a freeze of federal salaries, reducing the federal workforce and preventing millionaires from getting food stamps and unemployment benefits.

"Republicans will put aside their misgivings and support this extension, not because we believe as the President does that another short-term stimulus will turn this economy around ... but because we know it will give some relief to struggling workers out there who continue to need it nearly three years into this presidency," Senate Republican leader Mitch McConnell of Kentucky said Wednesday on the Senate floor.

The Democratic surtax would hit wealthy Americans who create jobs, McConnell added, arguing such a strategy made no sense.

The debate, he said, is about "whether we should help those who are struggling in a bad economy by punishing the private sector businesses that the American people are counting on to help turn this economy around."

The White House pushed back against the Republican argument.

Spokesman Josh Earnest told reporters traveling with Obama to Pennsylvania that the White House was open to Republican ideas on the legislation. At the same time, Earnest noted that Republicans have defended Bush-era tax cuts for millionaires but now raised questions about helping ease the tax burden of working-class Americans.

On Tuesday, the new chairman of the White House Council of Economic Advisers, Alan Krueger, told reporters that the proposed surtax on incomes above $1 million "would hit very few small businesses."

"The vast majority -- one figure I saw was 99% of individuals with small business income -- would not be affected by this," Krueger said.

According to the non-partisan Center on Budget and Policy Priorities, 121 million families have benefited from the payroll tax break, with an increase in take-home pay of $934 for the average worker.

Moody's Analytics estimated in August that letting the tax cut expire would reduce growth by as much as 0.5%. It called extending the cut one of the "most straightforward" ways to "reduce some of the coming fiscal restraint."

The Democrats' bill would extend and expand last year's tax break. Payroll taxes, cut to 4.2% from 6.2% last year, would be lowered to 3.1% to provide middle class families with up to $1,500 more in their paychecks next year, Democrats said.

Their measure also would partially extend the break to employers, hoping that might spur hiring.

The price tag of the bill is about $265 billion, paid for by the 3.25% surtax on annual income above $1 million, according to Democratic aides.

Senate Democratic leader Harry Reid of Nevada noted Tuesday that polls show a majority of Republican voters think wealthy Americans should pay more in taxes.

"The only place in America that people don't want a fair system is Republicans here in the Senate," Reid said.

By contrast, the Republican plan would continue the 4.2% payroll tax rate for a year and pay for it by imposing a three-year freeze on federal salaries and reducing the federal workforce by 10% through replacing workers when they quit or retire.

In addition, the plan would require Americans earning $750,000 a year or more to pay higher premiums for Medicare, and also prevent millionaires from getting food stamps or unemployment compensation.

According to a Republican aide, the non-partisan Congressional Budget Office found that the Medicare, food stamp and unemployment provisions would save $9 billion over 10 years, mostly from the Medicare part.

A statement by Reid spokesman Adam Jentleson said the Republican plan would never pass i the Democrat-controlled Senate, "but now that Republicans have reversed their position on the middle-class tax cut, we look forward to working with them to negotiate a consensus solution."

Obama's trip Wednesday was his 17th to Pennsylvania since taking office. Obama won the state by a 10-point margin in 2008, but Pennsylvania is seen as largely in play in the 2012 contest.

A Franklin and Marshall College poll taken in early November indicated Obama ahead of potential Republican rivals in Pennsylvania in hypothetical 2012 general election showdowns.

However, many voters surveyed said they hadn't yet made up their mind about whom to support in the presidential election.

CNNMoney's Jeanne Sahadi and CNN's Ted Barrett, Kate Bolduan, Kevin Liptak and Alan Silverleib contributed to this report.

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