Without Congressional action, a temporary payroll tax cut intended to stimulate the economy will expire on December 31 of this year. Last week the Senate defeated two proposals to extend the tax cut; Iowa Senators Chuck Grassley and Tom Harkin were on opposite sides of both votes.

On December 1, Senate leaders brought up the Middle Class Tax Cut Act, which “would have cut the employee and employer payroll tax to 3.1 percent, half of the 6.2 percent tax they would normally face.” Josiah Ryan reported for The Hill,

Most Republicans […] said they supported the underlying cuts, but would reject the bill because of the included “surtax on millionaires,” which would have applied a 3.25 percent tax on modified adjusted gross income higher than $1 million, or $500,000 for a married individual filing separately.

Although 51 senators supported the motion to proceed with consideration of that bill, it fell well short of the 60 needed to overcome a Republican filibuster. Harkin was one of the 50 Senate Democrats to support the motion, joined by one Republican Susan Collins of Maine. Grassley was among 46 Republicans and three Democrats who rejected the motion (roll call).

A few minutes later, Senate Republicans called for a motion to proceed with considering their own proposal to extend the payroll tax cut, “financed by cuts to the federal workforce, a freeze in pay, and means-testing certain benefits.” That went down with only 20 votes in favor and 78 against. Grassley was one of the 20 Republicans who backed that alternative (roll call). Harkin was among 52 Democrats and 26 Republicans who blocked it.

This week Senate Majority Leader Harry Reid floated a new proposal designed to draw more Republican votes.

Democrats have reduced the $265 billion extension and expansion of the payroll tax cut, which failed last week in a vote largely along party lines, to a new proposal totaling $180 billion, according to a Democratic official familiar with the plan.

The new proposal will extend and expand the payroll tax cut for workers, giving average families an extra $1,500 next year. Democrats have “reluctantly” decided to cut the payroll tax break for employers because of Republican concerns over its cost, said the official.

If it passes, workers would see their payroll taxes drop another one and a tenth percentage points, cutting the tax by 3.1 percentage points compared to 2010.

Encouraged by Sen. Susan Collins’s (R-Maine) vote for the Democratic payroll tax proposal last week, Democrats will keep their plan to pay for it by taxing income over a million dollars. In a concession to Republicans, however, Democrats have decided to shrink the surtax on millionaires’ income from 3.25 percent to less than 2 percent.

Democrats will also amend the millionaires’ surtax to make it sunset after 10 years.

I haven’t seen any public statement by Harkin or Grassley about last week’s payroll tax votes or what kind of compromise they might support before the end of the year.

On a related note, I am troubled to see so many Democrats using Republican logic and framing to make their case for extending the payroll tax cut. Here’s a typical statement, released by Representative Dave Loebsack (IA-02) on December 2:

Washington, D.C. – Congressman Dave Loebsack released the following statement in light of today’s announcement of November’s unemployment numbers and the Senate’s vote against extending the payroll tax holiday.  If this tax cut is allowed to expire, a typical American family making $50,000 a year would see their taxes go up by $1,000.  Last week, Loebsack wrote to Speaker Boehner calling on him to immediately bring up similar legislation.

“Preventing a $1000 tax hike for middle class families should be a no-brainer.  Unfortunately, political games in Congress are holding up legislation to help working families who have been struggling for far too long.  The Senate’s vote demonstrates once again the need for members to work together to reach common sense solutions that will grow our economy and put Iowans back to work.”

Get that? Letting a tax cut expire is a “tax hike” American families can’t afford. President Obama used the same logic to justify extending all the Bush tax cuts for two years at the end of 2010.

The rhetoric is “working” in the sense that Republican leaders want to make some kind of deal this month, so as not to be accused of raising taxes on working families.

However, Republicans will happily turn this argument to extend the Bush tax cuts one more time. President Obama and Congressional Democrats might make a half-hearted attempt next fall to let tax rates for the highest income brackets go back up to 1990s levels. In that case, Republicans will cite the weak economy, saying unemployment is too high for Congress to “raise taxes” on “job creators.” I don’t believe for a second that the president has the spine to fight this fight before the general election. One leading Senate Republican is already demanding that Democrats agree to extend all the Bush tax cuts in exchange for any payroll tax cut bill. Judging from his behavior in December 2010, Obama will cave on this issue again.

I do think the president is right to slam the latest example of GOP hypocrisy:

“Now, some Republicans who have pushed back against the idea of extending this payroll tax cut have said you’ve got to pay for this tax cut.  I’d just like to point out they haven’t always felt that way,” Obama said.

“Over the last decade, they didn’t feel the need to pay for massive tax cuts for the wealthiest Americans … Indeed, when the Republicans took over the House at the beginning of this year, they explicitly changed the rules to say that tax cuts don’t have to be paid for. So forgive me a little bit of confusion when I hear folks insisting on tax cuts being paid for.”

If Democrats can’t win this argument, they don’t deserve to hold on to their Senate majority.

Any relevant comments are welcome in this thread.

UPDATE: Representative Leonard Boswell (IA-03) sent an e-mail blast to constituents on December 5, using the same rhetoric we’ve heard from many other Democrats:

Dear Fellow Iowan,

I understand our folks are hurting, and that’s why Congress needs to act now to make sure the existing payroll tax cut doesn’t expire at the end of the year. If the majority party continues to block a vote on the Middle Class Tax Cut Act of 2011, virtually every American worker will see their taxes go up at the end of the month — by $1,000 for the typical family.

With people trying to meet their mortgage payment and other monthly bills — as well as their holiday season expenses — now is not the time for political wrangling and a tax increase. This is important legislation that economists agree will create hundreds of thousands of jobs.

Specifically, the Middle Class Tax Cut Act of 2011 would:

• Provide a Tax Cut to 160 Million Workers by cutting the Social Security payroll taxes paid by employees and the self-employed on their wages and salary from 6.2 percent to 3.1 percent. Approximately 160 million workers would benefit from this tax cut, with the average Iowa family seeing $1,500 in additional take-home pay.

• Slash the Payroll Tax for 98 percent of U.S. Businesses by cutting the employer-side Social Security payroll taxes from 6.2 percent to 3.1 percent for the first $5 million of payroll. This would benefit all businesses, but 98 percent of businesses would see their portion of the Social Security payroll tax cut in half. More than 60,000 small businesses in Iowa would stand to benefit.

• Provide an Incentive for Businesses to Hire New Workers by eliminating the Social Security payroll tax paid by employers on the first $12.5 million of an employer’s increased taxable payroll for the 4th quarter of 2011 and $50 million in increased payroll for 2012.

• Ask Millionaires to Pay Their Fair Share without Adding a Dime to the Deficit to create or save hundreds of thousands of jobs and prevent a tax hike for workers.

• Protects Social Security by requiring that the Social Security Trust Fund be made whole through transfers from the General Fund.

The American people are tired of the excuses, the bickering and of the very wealthy not paying their fair share. When millions are losing their jobs, homes, health care and education is increasingly unaffordable, the last thing we should be doing is increasing taxes on America’s working class.

Many Republicans even agree that the payroll tax cuts should continue. Nearly 60% of Americans, including 58 percent of Republicans, support the payroll tax cut to spur economic growth. This legislation is just pure common sense.

I will continue to urge my fellow members of Congress to extend the payroll tax cut for hardworking Americans.