Senate Minority Leader Mitch McConnell and other Republicans said Democrats' plan to extend the payroll tax break would hurt small businesses because it includes a millionaires tax.
Democratic and Republican efforts to continue the current payroll tax holiday failed this evening in the Senate when both competing proposals did not win the 60 votes needed to end debate.
The Democrats’ bill, which failed 51 to 49, would have extended and expanded the current payroll tax cut for workers, dropping the rate from 4.2 percent in 2011 to 3.1 percent next year.
The payroll tax, which funds Social Security, is normally 6.2 percent but was reduced under a law enacted last December. That tax break, however, is set to expire Jan. 1.
The Democratic bill would also cut the payroll tax in half for employers on the first $5 million of taxable payroll for 2012.
The measure also transfers funds from the general fund to the Social Security trust funds to ensure that Social Security is unaffected by this temporary payroll tax relief.
The $265 billion cost of the legislation would be paid for with a 3.25 percent tax on those making more than $1 million. Democrats believe that wealthier Americans should pay higher taxes in order to help the middle class and to boost the economy.
Republicans argue that the millionaires tax would slow the economy and harm small businesses, and they offered an alternative to just extend the current payroll tax break — which costs about $110 billion. The GOP alternative failed 20 to 78.
The GOP counterproposal would be offset by extending the current pay freeze for federal workers by three years, trimming the federal workforce by 10 percent and means testing programs such as Medicare, unemployment insurance and food stamps so that benefits are reduced for upper-income earners.
The offset would cover the cost of the extension plus reduce the deficit by $111 billion over the next decade.
Both Democrats and Republicans, including House GOP leaders, have committed to extending the tax cut but now must come up with an offset that can win a majority.
White House spokesman Jay Carney said that the Republican plan is the wrong approach.
“I would urge you not to be distracted by window dressing in the proposals that have come forward in terms of pay-fors by the Republicans,” Carney said. “The fact of the matter is, it’s an unbalanced approach. It would not and will not garner the same kind of support from the American people that the president’s proposal has garnered.”
Republicans have argued that many of the offsets in their bill were part of the proposals developed by the bipartisan deficit commission established by President Barack Obama last year and headed by former Clinton administration Chief of Staff Erskine Bowles and former Sen. Alan Simpson (R-Wyo.).