The newly unveiled GOP plan to pay for the payroll tax break next year includes forbidding super-high earners from collecting unemployment benefits and food stamps. Let’s presume, as Senate Majority Leader Harry Reid, D-Nev., has, that this is not a serious proposal. Other factions of the Republican Party are beginning to acknowledge the possibility of a millionaire surtax.
Republicans finally are conceding that allowing the payroll tax cut to expire would be politically disastrous in an election year. Now the debate shifts to how to cover the $120 billion it is estimated to cost. Democrats want to impose a surtax of 3.5% on annual incomes that exceed $1 million.
Mitch McConnell, R-Ky., rolled out his plan yesterday to cover the extension: Slash the federal work force by 10% and freeze its pay through 2015; forbid the $1 million-per-year club from collecting unemployment and food stamps; and force the super-rich over-65 crowd to pay more of their Medicare premiums. Not surprisingly, 92% of these projected savings are going to come on the backs of federal workers, not millionaires.
While the GOP has been almost completely united in its opposition to any new taxes at all and would prefer to pay for the extension by cutting the federal work force, some dissension emerged this week in the Senate.
Susan Collins, R-Maine, announced Wednesday that she supports raising taxes on millionaires to pay for another extension of the payroll tax cut. While she is known for breaking ranks frequently with the right wing of her party, Collins crafted her argument on GOP terms. Republicans have been horrified at the idea of taxing annual incomes of more than $1 million, a.k.a. “job creators.” They argue that many small-business owners would be affected by this new tax, hampering their ability to hire new workers. Collins, however, is calling their bluff by distinguishing between “active” and “passive” business income. Her analysis has concluded that it would be relatively simple to separate wealthy small-business owners, who actively manage their work, from the passive rich.
While perhaps in theory separating out small-business owners who enjoy annual profits in excess of $1 million would meet the GOP’s standard for not “punishing” job creators, it would add another level of complexity to the already enigmatic federal tax code. The more simple, efficient way to go about this is to acknowledge that the percentage of small-business owners who fall into this $1 million plus category is tiny.
Both the Treasury Department and the Tax Policy Center have run the numbers and concluded that only 1% of individual business owners would be subject to a millionaire tax. It is hard to imagine that a 3.5% tax on income in excess of $1 million will create such a hardship for these businesses that they will not hire the appropriate amount of workers. After all, any business owner that is earning these unusually high profit margins clearly knows what he or she is doing and probably will be able to roll with a 3.5% punch.
It’s middle-class consumers who are the primary beneficiaries of the payroll tax cut and, arguably, the real job creators. If the Republican Party truly is pro-business, and not just pro-wealthy, it will tax the top 1% of business owners a little more to put money in the pockets of the 99%’s customers.