Payroll tax cut: Divide over how to pay for it

@CNNMoney December 12, 2011: 4:44 PM ET
The fight over the payroll tax cut and other measures will likely come down to a deal between Senate Democrats, led by Harry Reid (l), and House Republicans, led by John Boehner (r).

The fight over the payroll tax cut and other measures will likely come down to a deal between Senate Democrats, led by Harry Reid (l), and House Republicans, led by John Boehner (r).

NEW YORK (CNNMoney) -- Democrats and Republicans both support extending the payroll tax cut for workers, and they both agree that the cost of the extension should be offset through changes elsewhere in the budget.

They even agree on a couple of ways to pay for the extension, such as increasing a fee that mortgage financing giants Fannie Mae and Freddie Mac would charge mortgage lenders.

But even though Congress is scheduled to recess for the year on Friday, and the tax break is set to expire on Dec. 31, the parties remain sharply divided over other major pay-fors.

Ultimately, the fight won't be limited to the payroll tax cut. It will extend to paying for the expected passage of two other measures: an extension of long-term federal unemployment benefits and the "doc fix," which will prevent a scheduled pay cut for Medicare physicians next year. (Read: Billionaires with 1% tax rates)

But for now, here's a look at each party's proposals to pay for the payroll tax cut extension, which at a minimum would cost about $120 billion.

What Democrats want

Tax millionaires: The most recent Senate Democrats' bill would impose a 1.9% surtax on modified adjusted gross income over $1 million. The provision would go into effect in 2013 and stay on the books for 10 years. Estimated revenue: $155 billion over 10 years.

Charge mortgage lenders more: Mortgage financing giants Fannie Mae and Freddie Mac would charge mortgage lenders more to guarantee repayment of new loans when they buy them from lenders and bundle them into a mortgage-backed securities. Estimated revenue: $38 billion over 10 years.

House Republicans are calling for a similar measure, which would raise an estimated $36 billion over 10 years.

Ban millionaires from receiving unemployment benefits and food stamps: There has not been a rash of millionaires collecting these federal benefits. So counting them as pay-fors is more of a feel-good populist move than a serious cost offset. Estimated savings: $127 million over 10 years.

The Democrats incorporated this proposal in their bill after it was first proposed by Senate Republicans.

What Republicans want

Curb pay and size of federal workforce: Senate Republicans have proposed a 10% reduction in the federal workforce, which has an estimated 2.1 million people in it. The reduction would be achieved through attrition. Agencies would be allowed to hire only one new employee for every three who retire until their workforce is 10% smaller.

In addition, Senate Republicans would extend for three years the current two-year freeze on the pay of civilian employees and members of Congress.

Both provisions combined would reduce spending by an estimated $222 billion over 10 years.

House Republicans took a slightly different tact. They would only extend the pay freeze for another year, saving $26 billion over 10 years.

And they do not call for a reduction in the federal workforce. But they propose other savings, such as an increase in how much federal civilian employees, including lawmakers, contribute to their retirement plans.

CNN Radio: American Sauce explains payroll tax debate

In addition, House Republicans would apply new rules to the retirement benefits offered to recently hired federal civilian employees. For one, they would change the formula for how their annuities in retirement would be calculated. Estimated savings of both provisions combined: $37 billion over 10 years.

They would also eliminate the minimum supplement paid to federal employees who retire before age 62, unless they are subject to mandatory retirement. Estimated savings: $1.6 billion over 10 years.

Charge millionaires more for Medicare: Senate Republicans would require those with adjusted gross incomes over $1 million pay the full premium for Medicare Parts B and D -- the portions of the program that help pay for doctor visits and drugs. Currently, everyone's Medicare premiums are subsidized to some extent by the federal government. Estimated savings: $9.2 billion over 10 years.

House Republicans would increase premiums paid by high-income households by 15%. The change would affect those making $80,000 if single; $160,000 if married. Estimated savings: $31 billion over 10 years.

Expand spectrum auctions: The House GOP proposal would allow the federal government to conduct licensing auctions of large chunks of airwaves, known as wireless spectrum, to mobile providers like Verizon (VZ, Fortune 500), AT&T (T, Fortune 500) and Sprint (S, Fortune 500). Estimated revenue: A net $16.5 billion over 10 years.

Curb child tax credit refunds: House Republicans would require a valid Social Security number to claim the refundable portion of the child tax credit.

Currently, those who are not allowed to work in the United States legally and file their taxes using an Individual Taxpayer Identification Number may claim the refundable portion part of the credit. It's refundable up to 15% of earned income over $3,000 -- if the credit exceeds their federal income tax liability. Estimated savings: $9.4 billion over 10 years.

Prevent Social Security overpayments: House Republicans would require that state and local government pension providers identify whether a worker's pension is based on government employment so that the Social Security Administration can improve how it enforces two benefit offsets affecting government workers. Estimated savings: $3 billion over 10 years. To top of page

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