Obama Pushes Payroll Tax Cut

President Obama is ramping up his campaign for a continuation of a payroll tax cut, which only affects the first $106,000 in individual income. Republicans object, in part because they don't even consider it a tax since the money goes to the Social Security Trust Fund. Democrats see it as a progressive tax cut. "Spreading the wealth" is a theme Obama campaigned on four years ago.

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MELISSA BLOCK, HOST:

President Obama travels to Pennsylvania tomorrow to press his case for extending the payroll tax cut. Today, Alan Krueger, the new head of the president's Council of Economic Advisers, called the cut a tonic for the fragile economy.

(SOUNDBITE OF PRESS CONFERENCE)

ALAN KRUEGER: This is the medicine that we can use in the near term to help strengthen the recovery and to help to provide insurance against shocks that might be coming.

BLOCK: But congressional Republicans don't see it that way, especially if the tax cut is paid for with a tax hike on the wealthy. As NPR's Scott Horsley reports, the debate has echoes of the 2008 presidential campaign.

SCOTT HORSLEY, BYLINE: President Obama warns that unless Congress acts soon to extend the payroll tax cut, the typical working family will have $1,000 less to spend next year.

PRESIDENT BARACK OBAMA: That is a big deal for people. How many business owners could stand to see their customers taking $1,000 less next year? That's $1,000 less that they can spend at a small business.

HORSLEY: Mr. Obama complains that Republicans in Congress seem less concern about preserving tax cuts for working families than they are with extending Bush-era tax cuts on the very wealthy.

OBAMA: Are they really willing to break their oath to never raise taxes and raise taxes on the middle class just to play politics? I sure hope not.

HORSLEY: This political fight has been brewing for years. Back in 2008, then-candidate Obama proposed a tax cut he called Making Work Pay, aimed primarily at those on the bottom rungs of the economic ladder. Republican rival John McCain called it a phony tax cut because some recipients were too poor to be paying income tax in the first place. McCain also lambasted Mr. Obama for telling Joe the Plumber he wanted to spread the wealth around.

(SOUNDBITE OF ARCHIVED AUDIO)

SENATOR JOHN MCCAIN: Barack Obama's plan to raise taxes on some in order to give checks to others - it's not a tax cut. It's just another government giveaway, which we certainly don't need right now.

(SOUNDBITE OF APPLAUSE)

HORSLEY: Days after Mr. Obama took office, Republican Congressman Eric Cantor tried to revive McCain's argument, saying the government should not give cash back to workers who don't make enough money to pay income taxes. The president cut the discussion short, telling Cantor simply, I won. Bob Williams of the Tax Policy Center says Mr. Obama's tax cut was incorporated as part of the government's stimulus program.

BOB WILLIAMS: Making Work Pay provided $400 for single workers and up to $800 for couples, it phased out for high-income people, so single people earning more than 95,000, couples earning more than 190,000 got no benefit at all.

HORSLEY: By the time that tax rebate expired two years later, Republicans were poised to take control of the House, and Cantor was set to become majority leader. Mr. Obama negotiated the payroll tax cut to take the place of Making Work Pay. It's less progressive, but still leaves tens of billions of dollars in the pockets of working families. As lawmakers debate whether to extend that cut, Republicans are skeptical, not only of the tax hikes on the wealthy needed to pay for it, but also whether tax cuts aimed at working families really help the economy. Here's Arizona Senator Jon Kyl on Fox News this weekend.

(SOUNDBITE OF TV SHOW, "FOX NEWS")

SENATOR JON KYL: The payroll tax holiday has not stimulated job creation. We don't think that was a good way to do it.

HORSLEY: But economist Nariman Behravesh of IHS Global Insight, says there's nothing phony about the payoff from extending the tax cut or the damage to the economy if it's allowed to expire.

NARIMAN BEHRAVESH: People did notice it last year when they got a little bit more in their paychecks. Perhaps they've forgotten that they got it, but they certainly will notice it when it's taken away from them. And I think they will adjust their spending accordingly.

HORSLEY: Behravesh warns any drop in spending next year would mean even slower economic growth. In the end, he thinks Congress will find a way to extend the payroll tax cut. But the debate over progressive taxes and the value of spreading the wealth around will continue. Scott Horsley, NPR News, Washington.

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