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November 28, 2001, Wednesday, BC cycle

4:18 AM Eastern Time

SECTION: Business News

Senate GOP offers Social Security tax holiday to break stimulus logjam

By CURT ANDERSON, AP Tax Writer

DATELINE: WASHINGTON

Aiming to break a deadlock, Senate Republicans are pushing a $100 billion economic stimulus package anchored by a proposal to give workers and employers a one-month holiday from Social Security taxes.

Republican leaders said the plan marked their latest effort to end the stalemate with Democrats over how to energize the economy. President Bush planned to meet Wednesday morning with congressional leaders of both parties to stress the need for immediate action. "We need for the Senate to come to an agreement," Treasury Secretary Paul O'Neill told reporters Tuesday during a visit to Capitol Hill. "We need to do it quickly."

Another senior administration privately signaled that the president would agree to some sort of Social Security tax holiday, calling the proposal first suggested by Sen. Pete Domenici, R-N.M., "a good solid effort to find middle ground."

Democrats say they are open to negotiations and would consider the Domenici proposal, but only if a $15 billion package of homeland security spending items be made part of the talks. Republicans have blocked a Democratic package including the items.

"We want everything on the table when we sit down," Senate Majority Leader Tom Daschle, D-S.D., said. A tax holiday would give workers and employers a one-month break from the 6.2 percent payroll tax that each pays into the Social Security Trust Fund. Self-employed people would get to keep the entire 12.4 percent for a month.

To prevent the already-threatened Social Security fund from losing money, the cost of the holiday - about $43 billion if done in January - would be replenished with a transfer from general tax revenues.

Domenici said a worker earning $40,000 a year would keep $207 more in earnings; a self-employed contractor would see a $413 increase in pay. Employers would also get infusions of cash.

"I have not seen a stimulus package that is better," said Domenici, ranking Republican on the Budget Committee.

The holiday proposal, part of a revised $100 billion stimulus package outlined Tuesday by GOP leaders, would essentially replace rebate checks of up to $600 for lower-income workers that were part of earlier versions.

Otherwise, the GOP plan contains many familiar items: reduction of the 27 percent tax bracket to 25 percent in 2002, instead of waiting until 2006; repeal of the corporate alternative minimum tax; an immediate 20 percent business depreciation write-off for three years; a 13-week extension of unemployment benefits; and $5 billion in grants that states could use to help the jobless pay health insurance premiums.

There were no signs that the latest GOP offer would bring Democrats and Republicans closer to a deal. In fact, the two sides spent much of Tuesday trading shots over which was being obstructionist.

House Ways and Means Committee Chairman Bill Thomas, R-Calif., told reporters that Democratic insistence on attaching the homeland security spending to the stimulus plan is designed to ensure that nothing passes.

"It is the Senate that has failed," Thomas said. "Either Daschle can't lead, or he isn't willing to lead, and the end result is the same: failure."

Daschle challenged Republicans to identify which items they specifically oppose, such as nuclear plant security, border security or more vaccines to combat bioterrorism.

"The homeland security bill is a direct response to the tragedy of Sept. 11," he said.