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Payroll Tax Cut Will Top Political Theater

Senate Democrats and the White House are setting up a certain-to-fail vote to extend and expand the payroll tax cut as soon as this week as their signature political showcase heading into the election year.

For Democratic partisans, the series of made-for-attack-ad Senate votes pitting tax increases on the rich against pieces of the president’s jobs package have served as appetizers to the main event: a showdown between tax cuts for more than 99 percent of taxpayers and many businesses and tax increases on millionaires.

A senior administration official last week called the upcoming payroll tax vote “clarifying” after the super committee failed to reach a deal — with taxes also at the heart of the dispute. The vote on the plan is intended to show that Republicans are willing to do anything to protect the rich — even allow a tax increase on everyone else. And Democrats are aiming to play the role of Robin Hood.

About 160 million workers will see their payroll taxes go up by 2 percent of their income — $1,000 on a $50,000 salary — on Jan. 1 unless Congress acts.

President Barack Obama put the spotlight on Republicans during a visit to New Hampshire.

“If they vote ‘no’ again, the typical family’s taxes will go up $1,000 next year. If they vote ‘yes,’ the typical working family will get a $1,500 tax cut,” Obama said Thursday in Manchester, N.H. “So I just wanted to be clear for everybody: ‘No’ — your taxes go up. ‘Yes’ — you get a tax cut. Which way do you think Congress should vote?”

But beyond the show vote, which could happen as soon as this week depending on what happens with the defense authorization bill, the White House has already signaled a willingness to drop the tax increase on millionaires and simply add to the deficit to get the tax cut through.

Obama said in his jobs speech in September that every penny of his package “will be” paid for, but that has shifted to “can be,” in the words of one senior official.

“The critical thing is to extend the tax cut,” another senior official said, noting the need to continue to support the economy in the short run. “The issue was never ‘Do you pay for it right now?’”

The irony is that after struggling all year to cut the deficit, Congress and the White House may actually end the year by adding hundreds of billions of dollars to it.

House Republicans have taken a conciliatory approach when it comes to the payroll tax, identifying it in September as a possible area for compromise and complaining about what they see as grandstanding by the White House.

“We’ll be happy to talk with the White House about it,” one senior GOP aide said.

Republicans in general have been divided about what to do about the payroll tax cut, with some preferring to let it expire and worrying about the long-term financing of the Social Security system. Other Republicans, including Sen. John McCain (Ariz.), are open to extending the cuts.

Republicans have voted many times in the past for tax cuts — including last year in a December deal with the president — without paying for them.

A senior Senate Democratic aide put it in more political terms, suggesting the GOP will let the payroll tax cut go through, for a price. It’s a preview of how the Democrats will frame the debate for voters.

“They better be careful not to go too far in trying to use the threat of a middle-class tax hike for leverage, or they risk further alienating voters who already think the GOP caters to the super-rich,” the aide warned.

Republicans point to 20 bills awaiting Senate action that they say would create jobs, and they are urging Democrats to compromise with them instead of trying to jam the measures through.

It’s still uncertain how the payroll tax cut — and potentially other Obama Christmas wish list items such as an extension of unemployment benefits and a measure preventing a big cut in payments to doctors — will ultimately make it to the president’s desk given the short amount of time remaining on the legislative calendar and the limited number of bills expected to move.

Possible vehicles for the tax cut include the defense bill, an appropriations omnibus or a continuing resolution that must pass by Dec. 16, and lawmakers in both parties are looking to pass a variety of tax cut extensions.

In the wake of the failure of the Joint Committee on Deficit Reduction, there may be one more attempt at a serious bipartisan deficit reduction plan.

“I think we ought to say, after Feb. 1 of next year, any 12 Senators, six of either party, who produce a plan that can reduce this deficit by at least as much as the super committee was charged to do ought to be able to bring it to the floor for a vote,” Senate Majority Whip Dick Durbin (D-Ill.) said last week on MSNBC’s “Morning Joe.”

Durbin said he told the 45 Senators backing the approach of the “gang of six”: “If the super committee doesn’t produce, now it’s our turn.”

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