McConnell Opens Door to Payroll Tax Cut Extension

Nov. 29, 2011: Senate Minority Leader Mitch McConnell speaks to the media following a Republican policy meeting on Capitol Hill. (AP)

Senate Republican Leader Mitch McConnell on Tuesday opened the door to extending the payroll tax holiday, just two days after his top deputy suggested Republicans would not support a renewal of the temporary cut.

"In all likelihood, we will agree to continue the current payroll tax relief for another year," McConnell said Tuesday.

The statement comes after top Democrats harangued Republicans, accusing them of endangering middle-class families who could face an average $1,000 tax increase if the tax cut expires on schedule at the end of the year.

McConnell, though, stressed that Democrats will need to take a different approach if they want to win GOP votes.

The current Democratic proposal, authored by Sen. Bob Casey, D-Pa., would expand the size and scope of the current tax cut -- increasing the size of the cut itself and applying it to employers as well as employees. It would also pay for the cut with a surtax on millionaires.

McConnell made clear Republicans were not on board with either of those provisions. He said Senate Republicans would put forward an alternative proposal for how to pay for the extension, so it "does not adversely impact job creation at a time when we are either in a recession or look very much like we're in a recession."

And he said the extension should apply to individuals only. A McConnell aide later told Fox News that McConnell wants to extend the current tax cut and not enact any of the expansions that Democrats are pushing for.

The opening, though, allows room for negotiation, as Congress faces the latest in what appears to be a never-ending series of missed deadlines.

Democrats this week have been charging ahead with their proposal, looking at a vote as early as the end of the week. In a series of public statements, they tried to shame Republicans into supporting it.

Senate Majority Leader Harry Reid, D-Nev., on Tuesday accused Republicans who might vote against it of defying their own pro-tax-cut stance, just when the middle class stands to benefit.

"Republicans who vote no will literally be taking money out of the pockets of middle-class taxpayers," Reid said on the floor.

The barbed comments reflect renewed partisan divisions in Congress on the jobs front, after the bipartisan committee tasked with cutting the deficit broke apart last week without a deal. Lawmakers had hoped to use the so-called Super Committee as a vehicle to not only slash the deficit but extend provisions like the payroll tax cut that are set to expire in 2012. Without an agreement, Congress is left trying to deal with these expiring benefits on a piecemeal basis.

While McConnell has since opened the door to extending the cut, Republicans' concerns about the proposal were chiefly rooted in the Democratic plan to use a millionaire surtax to finance it. Under the proposal, Congress would tax the rich, then transfer that money into the Social Security Trust Fund to make up for the lost revenue from the tax cut.

Sen. Jon Kyl, R-Ariz., the No. 2 Republican in the Senate and a member of the Super Committee, said on "Fox News Sunday" that a tax on job creators to pay for the cut would "put off the day we have economic recovery and job creation in this country."

Kyl also said the one-year payroll tax cut, secured last year as part of broader tax-cut negotiations, has done little to stimulate job growth.

McConnell echoed those concerns Monday, without specifically addressing the payroll tax cut. He said a "temporary stimulus funded by a permanent tax hike" would be "purely political" and "likely to fail."

Asked about Democratic claims that Republicans were recently in favor of the payroll tax cut, McConnell spokesman Don Stewart said "at no time did any Republican ever previously support a temporary payroll tax cut that was attached to a permanent tax hike."

It's unclear how exactly McConnell now proposes to pay for the one-year extension. Aides said the offset they propose has not yet been scored by number crunchers.

Casey spokeswoman April Mellody told FoxNews.com the senator is hopeful he can win bipartisan support. Asked whether the millionaire surtax is negotiable, she said, "(Casey) has said we need to get this done, but we're all open to ideas."

The proposal on the table would extend the current payroll tax cut and expand it -- cutting the payroll tax rate in half from 6.2 percent to 3.1 percent. The cut is currently at 4.2 percent from 6.2 percent.

In addition, it would cut the employer share of the payroll tax in half on the first $5 million of the payroll for most U.S. businesses. The employer share of the payroll tax for newly hired workers would be eliminated entirely for the first $50 million of the payroll in 2012.

The White House, meanwhile, claims that a failure to renew the tax cut will "shrink" the economy.

White House Press Secretary Jay Carney this week claimed the payroll tax cut so far has contributed up to 1 percent of GDP growth. Carney on Tuesday brought out Alan Krueger, chairman of the White House Council of Economic Advisers, to make the economic case for the extension.

"The economic argument for these proposals is quite compelling," Krueger said. He said failing to renew the cut would pose a "drag on economic growth" at a sensitive time, while expanding it would stimulate growth.

Carney and other Democrats are accusing Republicans of trying to protect millionaires at the expense of the middle class. An email Tuesday from House Democratic Leader Nancy Pelosi said that Republicans "will say absolutely anything ... to protect those making over a million dollars a year from paying one red cent." The statement did not mention the 35 percent income tax rate, in addition to payroll and other taxes, millionaires currently pay.

Jason Peuquet, policy analyst with the Committee for a Responsible Federal Budget, said Congress' biggest problem is that it's trying to tackle these proposals one at a time, instead of as part of a comprehensive package that simultaneously reins in the deficit.

"This is a really challenging position to be in," he told FoxNews.com. "It's a lot harder to tackle each one of these issues independently."

Peuquet said Congress should at least find a way to pay for the payroll tax cut extension, should it move forward.

"It would be a huge lost opportunity here over the coming months to just blow another hole in the deficit, like we did last December on the tax cut deal," he said.

Fox News' Trish Turner contributed to this report.