LEWISTON — U.S. Sen. Olympia Snowe on Friday said her vote against a proposal that would have extended a payroll tax cut by raising taxes on millionaires was rooted in her desire to protect small businesses. 

Snowe, who was visiting Carbonite in Lewiston, said she opposed the Democrat-sponsored proposal because the surtax on people earning more than $1 million a year would be a “permanent tax on four out of five small businesses.”

“This is a permanent surcharge to pay for a temporary tax cut,” she said.

Asked for more details about the “four out of five small businesses” statistic, Snowe’s communications staff said it refers to recent U.S. Treasury data that show 392,000 taxpayers had incomes exceeding $1 million in 2007. However, while 311,000 of those met the Treasury’s definition of “business owner,” it’s not clear how many of those are actually small business owners.

Snowe answered several questions about the payroll tax cut holiday, which has become the latest flash point in the national political debate over economic policy.

The Democratic bill, a key component in President Barack Obama’s jobs initiative, was approved by a majority of senators but failed to reach the 60-vote threshold to avoid a Republican filibuster. U.S. Sen. Susan Collins, R-Maine, was the only Republican to support the bill, even though she too expressed concerns about its effect on small businesses.

Asked about Collins’ vote, Snowe said, “I can’t speak for her. I can only speak for myself and my vote.”

Snowe later said that she was hopeful a deal could be reached.

“We could solve this problem in a reasonable, fiscally responsible way, but there are some, in the United States Senate, and the entire Congress, who would rather score the political points,” she said.

She added, “It’s whether they want the politics or the policy. I want the policy.”

Snowe was also asked how she would fund the tax cut. She supported freezing wages on federal workers and discretionary federal spending, as well as preventing seven-figure earners from receiving food stamps and unemployment benefits.

All those provisions were included in a GOP bill that also failed passage in the Senate. Forty-seven Republicans voted against it. Snowe and Collins supported it.

Collins’ divergence with Snowe on the Democratic plan was seized upon by progressives, who were quick to point out that Collins has made a public distinction between the wealthy and the “job creators” often cited by Republicans.

Collins, who was also back in Maine on Friday, argued that small businesses should be exempt from any surtax to pay for the payroll tax cut.

“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,” Collins said in a statement. “But I feel strongly that we must ensure that small business owners who pay taxes through the individual income tax system are protected. These are our nation’s job creators.”

Collins said lawmakers should look to existing tax code to determine which millionaires were small business owners and which are the “idly” wealthy.

It remains to be seen whether Collins’ views will be manifested into a future compromise bill.

The failed proposal would have assessed a 3.25 percent tax on people who earn more than $1 million, to pay for the $200 billion payroll tax cut.

Some opponents of the plan, which included two Democratic senators, worried it would raid the nation’s Social Security Trust Fund. That argument was made by Sen. Bernie Sanders, I-Vt., who favors expansion of the tax cut, but who voted against the Democratic plan Thursday.

The debate now shifts to the U.S. House of Representatives where the Republicans hold the majority.

While most of the GOP held the line in the Senate, House Republicans appeared to be more divided. Some GOP members have echoed Snowe’s concerns about taxing the wealthy. But others, including House Speaker John Boehner, R-Ohio, believe the tax cut helps the economy.

“You’re allowing more Americans, frankly, every working American, to keep more of their money in their pocket,” Boehner told reporters last week. “Frankly, that’s a good thing.”

Some pundits believe the GOP opposition to the extension is rooted in their efforts to deny Obama a political victory. But Republicans also worry that they’re getting outmaneuvered by Democrats on an issue that the GOP typically wins: tax cuts.

“(Democrats) do want to score points against the GOP and, like clockwork, the GOP is throwing the ball into the Democrats’ basket for them,” wrote Erick Erickson on the conservative political blog RedState.

Erickson argued that Republicans should counter the Democrats’ strategy by making the payroll tax cut permanent.

That seems unlikely, given concerns among both parties that tax cuts would hurt the solvency of the Social Security Fund.

According to an analysis by ProPublica, the tax cut in place for the past year cost the fund $110 billion in lost revenue. The federal government has replenished the fund with additional borrowing.

The solvency of the Social Security Fund is a chief concern of U.S. Rep. Mike Michaud, D-Maine. While Michaud supports extending the cuts, he is withholding his full endorsement until he sees how they’ll be funded in a House proposal.

“At a time our workers and employers are struggling to get ahead, it makes sense to extend the payroll tax cut,” Michaud said in a statement. “But financing it by raiding Social Security is not the way to go and sets a dangerous precedent. That’s why it’s so important to ensure the tax cut is paid for in a way that makes sure Social Security’s trust fund is made whole.”

Ed Gilman, a spokesman for Michaud, did not elaborate on alternative ways to fund the cut. However, he said the congressman would consider supporting Collins’ idea of carving out small business owners from the millionaire surtax.

U.S. Rep. Chellie Pingree, D-Maine, has said she supports the plan that Senate Democrats failed to advance this week.

smistler@sunjournal.com

About the payroll tax cut

What is the payroll tax?

The tax is the part of your wages withheld for Social Security and Medicare. The Social Security portion is split 50-50 between employees and employers to equal 12.4 percent of total wages. Employees and employers each pay 1.45 percent into the Medicare tax.

How much is the cut?

The tax cut in place since last year reduces the employee portion of the Social Security tax by 2 percent. Employers continue to pay the same tax rate.

The cut expires Dec. 31.

What happens if the cut expires?

Employees will resume paying their full portion of the Social Security tax, which is about 6.2 percent of their total wages.

According to the Tax Policy Center, the cut has resulted in an average savings of $900 per American household.

You can find out how much the cut has saved you, and how much the expiration of the cut will cost, by using an online calculator on the White House website. Visit: http://ow.ly/7MJfH.

Upside, downside

Supporters of the cut say it puts money back into the pockets of working Americans who are most likely to turn around and spend it. And that, they say, will spur economic growth.

According to Moody’s Analytics, failure to extend the payroll tax cut and extend unemployment insurance (a separate issue) would result in 1 percent drop in gross domestic product growth and about 1 million jobs in 2012.

However, the cut also raids the Social Security Fund, which is used to pay out benefits once people retire. The government has borrowed to replenish the fund over the duration of the current payroll tax cut, but critics say doing that only worsens the national debt.

Additionally, there’s some debate over the effectiveness of the cut. According to a recent post in the New York Times, Bruce Bartlett, a policy adviser for Presidents Ronald Reagan and George H.W. Bush, the cut may not result in job growth. The best way to achieve the latter, he wrote, was to initiate a massive public works project, which would also require federal spending.

Now that the Senate has failed to pass an extension, what’s next?

The debate shifts to the U.S. House of Representatives where some pundits believe lawmakers will reach a compromise.

Information provided here was derived from analyses by The Tax Policy Center, Moody’s Analytics and ProPublica.

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