In a preemptive move amidst a tax cut deadlock, the Obama White House is proposing a one-year "payroll tax holiday" as part of a larger compromise with members of Congress to avoid any increase in taxes when the Bush administration tax cuts expire at the close of 2010. The Wall Street Journal reports:
Under the White House plan, the Social Security tax paid by workers would drop temporarily by 2 percentage points, to 4.2% from 6.2%, a person familiar with the proposal said. For a worker earning $40,000, the tax savings would be $800.
The proposal has not won the approval of congressional Democrats or Republicans. Its emergence in the broader tax negotiations is a sign that the White House is trying to break the logjam on those talks before the end of the year, when tax cuts signed into law by former President George W. Bush are due to expire.
White House officials proposed the cut as a way to stimulate the economy, said the person familiar with the talks. The proposal would take the place of an earlier White House push to extend Mr. Obama's signature Making Work Pay tax cut, which reduced income taxes for middle-income individuals by $400 a year.
Republicans had adamantly opposed extending Making Work Pay, and House Democrats were cool to it, as well. But Mr. Obama and Democrats are likely to accept a Republican demand that the Bush-era tax cuts be extended even for wealthy taxpayers, and the White House is looking for more in return for agreeing to extend the cuts for higher earners.
Update: In exchange for a 13-month extension of jobless benefits for unemployed workers who have exhausted their 99 weeks of available assistance, the Obama administration has agreed to a 2 percent employee payroll tax cut and extensions of several tax credits that were included in the stimulus bill.
In addition, the deal also revives the estate tax in 2011, but would exempt any inheritance under $5 million for individuals and $10 million for couples. The Bush-era tax cuts will be extended for at least two years for all income levels -- a Republican proposal vehemently opposed by many progressive liberals on Capitol Hill. In anticipation of significant opposition from his own party, Obama plans to send Vice President Joe Biden to meet with Senate Democrats Tuesday, the Washington Post reports.