WASHINGTON – U.S. Sen. Susan Collins of Maine broke with fellow Republicans Thursday night and voted to raise taxes on millionaires to pay for an extension of the Social Security payroll tax cut that’s due to expire Dec. 31.

But dueling proposals by Senate Democrats and Republicans to extend the tax cut failed amid charges of election-year politics. Collins said she plans to pursue a bipartisan compromise next week that would exempt small-business owners from the surcharge on millionaires.

Collins said in a phone interview Thursday night that her goal is to make sure “working families aren’t faced with a tax increase come January, frankly at a very bad time given the fragility of our economy.”

Both parties have said they want to extend into 2012 the payroll tax cut, which will give an extra $1,000 to a family earning $50,000 this year. But they are bickering about how to do so without raising the deficit. President Obama went to the swing state of Pennsylvania on Wednesday to push for the extension and pitch the Democrats’ plan.

Republican Sen. Olympia Snowe of Maine joined the rest of the Republicans and three Democrats in voting against the Democrats’ bill, which received 51 votes, short of the 60 needed to clear a procedural hurdle. Snowe and Collins both voted for the GOP alternative, but that got just 20 votes.

“I do not want to see the existing payroll tax holiday end, and I could support a one-year extension if it is paid for sufficiently, fairly, and in a way that will not damage our economy,” Snowe said in a statement. “A permanent tax increase that will harm small businesses is the wrong prescription for our economy, and it won’t promote economic growth.”

While Collins said she doesn’t want to see small-business owners hit by a surcharge on the income tax paid by people earning more than $1 million, she said the Democrats’ bill would help to offset the impact by applying the payroll tax cut to an employer’s payroll as well as to employees’ wages.

“My preference, and what I will be working on and unveil next week, is a bipartisan proposal that has a surtax on wealthy people but with a carve-out for small businesses,” Collins said.

Collins on Tuesday first raised the prospect of supporting Senate Democrats’ proposed surcharge on millionaires if it excluded the “job creators” who own small businesses.

But the Democrats didn’t alter their bill to reflect Collins’ proposed small business exception as a compromise, and neither did GOP Senate leaders.

Collins said she decided to vote for the Democrats’ bill anyway because, “I have long said that multimillionaires and billionaires who are not running businesses could pay more of their income to help us deal with the deficit. Protecting small businesses from the surtax is essential. Extending the payroll tax to employers will help them preserve and create jobs.”

The payroll tax cut this year lowered the rate from 6.2 percent to 4.2 percent.

Senate Democrats want to cut it further for 2012, to 3.1 percent, which they say would save a family earning $50,000 about $1,500 and spur spending to boost the economy. The payroll tax cut extension also would apply to employers — on the first $5 million of payroll — which Democrats say would encourage more hiring.

Democrats would pay for their proposed payroll tax cut — which would cost about $250 billion — with a 3.25 percent surcharge on the income taxes paid by people earning more than $1 million.

The alternative proposed by Senate GOP leaders would extend the payroll tax cut but not expand it. Republicans would pay for their proposal by freezing federal employees’ salaries through 2015, lowering the number of federal employees through attrition, raising Medicare premiums for people making more than $750,000 and eliminating unemployment benefits for those earning more than $1 million.

White House press secretary Jay Carney called the GOP proposal “window dressing.” Senate Majority Leader Harry Reid, D-Nev., said Republicans “insist on helping the very wealthy while turning their back on the middle class.”

Senate Minority Leader Mitch McConnell, R-Ky., blamed Obama and Democrats for the standoff, saying, “There’s no reason folks should suffer even more than they already are from the president’s failure to turn this jobs crisis around. But there’s also no reason we should pay for that relief by raising taxes on the very employers we’re counting on to help jolt this economy back to life.”

The Associated Press contributed to this report.

MaineToday Media Washington Bureau Chief Jonathan Riskind can be contacted at 791-6280 or at:

jriskind@mainetoday.com

Twitter: Twitter.com/MaineTodayDC

 

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