WASHINGTON — Maine’s Republican senators say they support extending a Social Security payroll tax cut into next year, but don’t like Senate Democrats’ plan to pay for it by raising taxes on millionaires.

The payroll tax cut, which is set to expire Dec. 31, is headed for a partisan vote this week. President Barack Obama and fellow Democrats have been leading the charge to extend the tax break that has an impact on millions of America families.

“I don’t think that we should be imposing additional taxes on working families at a time when the economy is so fragile,” said Sen. Susan Collins, R-Maine. “So the issue for me is how it is paid for.”

The payroll tax was trimmed from 6.2 percent to 4.2 percent this year and saved a family earning $50,000 about $1,000.

Now, Senate Democrats want to cut the payroll tax further for 2012, to 3.1 percent, which they say would save that same family about $1,500 and spur spending to boost the economy. The payroll tax cut extension also applies to employers — on the first $5 million of an employer’s payroll — which Democrats say would encourage more hiring.

Democrats would pay for payroll tax cut by imposing a 3.25 percent surcharge on the income taxes paid by people making more than $1 million.

A number of Republicans say they are agreeable to extending the payroll tax cut, but don’t want its cost — about $250 billion — added to the deficit. They also say that the surcharge on millionaires will hurt small businesses and hinder job creation. Other Republicans are ambivalent about the tax cut, saying they aren’t sure it will do much in the long run to strengthen the economy.

Collins told reporters on Capitol Hill Tuesday that she might be willing to compromise on the issue if Senate Democrats agreed to exempt small business income from the surcharge on the income taxes paid by millionaires.

“I have advocated that we do a carve out for small business out of the so-called millionaires tax to make sure that it is not hitting subchapter S corporations, for example, and discouraging small employers from doing more hiring,” Collins said.

Of the roughly 150,000 Maine residents who reported business income on their income tax returns in 2009, fewer than 400 had federal adjusted gross income of more than $1 million, according to Maine Revenue Services.

Asked about the number of small businesses in Maine seemingly affected by the proposed surcharge, Collins spokesman Kevin Kelley said that “Senator Collins wants to protect job creators and middle class taxpayers, not multi-millionaires and billionaires.”

Meanwhile, Sen. Olympia Snowe, R-Maine, is among the Republicans who question whether another one-year payroll tax cut is the spark needed to rev up the economy. It would be far better for Congress to spend its time working a comprehensive overhaul of the entire tax code, Snowe told reporters Tuesday on Capitol Hill.

“I support the policy behind it (the payroll tax cut), to some extent,” Snowe said. “I wouldn’t say that that is the end all and be all to solving the questions about creating jobs. What I’ve heard from employers is that a one year policy isn’t going to be sufficient unto itself to prompt them to hire people because that is a long term cost.”

Snowe noted that Republicans already have voted against a similar millionaires’ surcharge that Democrats have proposed to pay for other job creation proposals.

“We ought to look at the options for supporting alternatives . . . instead of having more political votes,” Snowe said, adding she would take a look at Collins’ proposed compromise.

Senate Democrats will put the extension up for a vote but with the expected GOP opposition are likely to fall short of the 60 votes needed to clear a procedural hurdle.

With many economists warning that allowing the payroll tax to expire could drain needed spending money from the economy, it appears likely a compromise will be found.

Indeed, Senate Majority Leader Harry Reid already seemed to be conceding failure this week when he said on Monday that he would bring the payroll tax cut extension back in various forms until it passes. Reid declined to say where he thought a compromise might be found. In addition to the payroll tax cut extension, there is pressure on lawmakers to extend long-term unemployment benefits due to expire at the end of the year.

Maine’s U.S. House members, Reps. Chellie Pingree, D-1st District, and Mike Michaud, D-2nd District, also back the payroll tax cut extension. Michaud has said, though, that he too wants to see how it is paid for when it comes up in the House before he commits his vote.

 

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