'World News' Political Insights: President Obama Picks Tax Fight With GOP

WASHINGTON, Aug. 21, 2011— -- Get ready for yet another Washington tax fight. But this one will be waged on slightly different terrain.

Far from running from it, President Obama and his political team are actually itching for this battle to play out in the coming months, as the calendar is set to flip into his reelection year.

This time, it's the president who wants lower taxes. Republicans are threatening to line up against him, in a stand that would leave them open to charges of favoring higher taxes on the vast majority of the nation's taxpayers.

At issue is the expiring cut to the obscure but impactful "payroll tax," a tax reduction approved with little fanfare as part of a broader tax deal late last year. Normally, workers pay 6.2 percent of their income into a Social Security fund, with employers paying a matching 6.2 percent.

But this year, workers' share has been cut a full 2 percentage points. That means an extra $1,000 in the pocket of a taxpayer who is earning $50,000 this year, up to a total savings of $2,136 for those who make $106,800 or more -- the threshold beyond which earnings are not taxed for Social Security.

The president wants that tax cut extended by another year, a proposal he mentioned in his weekend radio address and that will be part of the White House's larger job creation package this fall.

Some congressional Republicans, meanwhile, are vowing to oppose another temporary payroll tax cut, even as they pursue other tax cuts that would affect far fewer -- and far wealthier -- Americans.

That situation has leading Democrats sensing an opportunity for the president to turn the tax tables on Republicans. Their calculation: that voters will see Republican tax-cutting efforts as giveaways to special interests, while Democrats fight against them for tax cuts that would actually put dollars in the pockets of families.

"We need to extend the payroll tax cut that's in place right now," senior Obama campaign adviser David Axelrod said today on ABC's "This Week."

"It is unthinkable to me that the Republican Party would say ... we can't touch tax cuts for the wealthy, we can't touch special interest corporate tax loopholes because that will hinder the economy, but we'll allow a $1,000 tax increase on the average American come January," Axelrod said. "How could that be? The only explanation for it is politics."

Republicans aren't shrinking from the fight. For starters, the payroll tax is far less visible and far less understood than the normal federal income tax. Republicans are foursquare behind efforts to make the Bush-era income tax cuts permanent, something the president opposes.

And because the payroll tax is generally deducted directly by employers before workers ever see the money, many don't know they're paying it, and may not realize they are getting the extra money this year.

In any event, leading Republicans on Capitol Hill and among the presidential contenders see a few major problems with the president's payroll tax cut. They would rather see tax relief in place for job creators rather than for individual taxpayers, and fear that getting boxed in on individual tax cuts of this nature would reduce their flexibility in longer-term deficit talks.

Plus, they don't like the temporary nature of another short-term tax cut, arguing that the economy needs predictable and sensible tax policies for businesses to resume expansion.

"We don't need short-term gestures. We need long-term fundamental changes in our tax structure and our regulatory structure that people who create jobs can rely on," Sen. Lamar Alexander, R-Tenn., told the Associated Press when asked about the payroll tax proposal.

Issues of taxing and spending will gain fresh relevance this fall, with the president's latest economic proposals expected as a package next month, and the special deficit super-committee scheduled to report back shortly before Thanksgiving.

It's unclear how that committee will recommend dealing with the payroll tax issue. But it will be on Washington's agenda even if it's ignored by the deficit panel: The tax rate reverts to its regular, higher level as of Jan. 1, unless Congress acts before then.

Democrats have rarely fared well fighting over taxes with Republicans. National polls have shown that Obama has been blamed -- wrongly -- for enacting higher taxes. He's been forced to cave on big tax fights with Republicans already, most notably with last year's deal extending the Bush tax cuts two years.

But the president has had some success scrambling the politics of taxes in 2008, by attacking presidential rival John McCain for favoring a new tax on health care. Some of his ads drew criticism for containing half-truths, but the strategy helped neutralize McCain's attacks on Obama over taxes during the campaign.

Obama campaign aides hope for a fight that will draw clear distinctions between the president and Republicans in Congress. They see the seeds of a political revival not just in an economic turnaround but in having a debate over the future of the economy, on terms of their own choosing.

It won't only be Republicans relishing a tax debate in 2012, if the next few months play out as the White House hopes.