Payroll-Tax Cut Showdown Nears

Republicans in House ready to vote to reject bipartisan Senate plan.

The U.S. House of Representatives lurched toward a showdown over an expiring payroll tax cut, escalating a legislative fight that may result in smaller paychecks in January for 160 million workers.

The Republican-controlled House is scheduled to vote today to reject a bipartisan Senate plan that would extend the expiring tax cut and other provisions for two months. House leaders said the stopgap measure was unworkable and doesn’t provide enough certainty for businesses. Democrats said Republicans were bowing to Tea Party resistance.

“Our members do not want to just punt and do a two-month short-term fix where we just have to do this again,” House Speaker John Boehner said yesterday as he called for negotiations between the House and Senate.

With 11 days before the 2 percentage point tax cut expires, lawmakers are sticking to their positions in a political messaging battle that both sides say they are winning. Neither side gave any ground yesterday. If neither budges, the tax cut will end Dec. 31.

House Republicans slammed the Senate, saying lawmakers of both parties there were too eager to get out of Washington for the holiday recess and too unwilling to negotiate a yearlong extension. The House passed a bill Dec. 13 that extends the payroll tax cut and expanded unemployment benefits through 2012. It includes a provision that prevents doctors from seeing their Medicare reimbursements cut starting in January.

“They took an awfully bad deal,” Representative Mike Simpson, an Idaho Republican, said of the Senate. “They need to come back and go to work. There’s time to do it.”

House Democrats painted their Republican colleagues as unwilling to do what is necessary to prevent a tax increase for U.S. workers.

“What we see now is stalling action on the part of those who were never for a payroll tax cut in the first place,” House Democratic leader Nancy Pelosi told reporters last night. “Republicans do not want a payroll tax cut for the middle class.”

Economists at Deutsche Bank Securities estimate that extending the tax cut would add 0.7 percent to the U.S. gross domestic product in 2012. The effect could shrink depending on whether energy prices increase.

The House had planned to vote last night on the Senate-passed bill. As a meeting of House Republicans dragged past 8 p.m. in Washington, their leaders rescheduled the vote for today. They also structured the question facing the House so that Republicans will be the ones casting “yes” votes to seek a conference with the Senate on the bill rather than casting “no” votes under a previously planned procedure.


Taking No Action

Under the previous plan, if enough Republicans had defected, the short-term extension would have passed. Under the new plan, Republican defections would result in the House taking no action.

Pelosi said she thought Republicans made the change because they were worried that enough of their members would vote with the Democrats to support the Senate bill. She also blamed “radical Tea Party Republicans” for the stalemate.

As evidence House Republicans don’t actually favor a payroll tax cut, Democratic Whip Steny Hoyer of Maryland quoted Boehner as saying June 16 that extending it was “another little short-term gimmick” that wouldn’t eliminate uncertainty for business investors.

Senate Democrats continued to resist Boehner’s call for a House-Senate conference. They said they wouldn’t begin those talks until the House passed the two-month extension to stave off the Dec. 31 expiration.

“With millions of Americans struggling to make ends meet, it would be unconscionable for Speaker Boehner to block a bipartisan agreement that would protect middle-class families from the thousand-dollar tax increase looming on Jan. 1,” Reid, a Nevada Democrat, said in a statement yesterday. “It is time for Speaker Boehner to follow through.”

The $202.4 billion House bill provided a yearlong extension of the expiring provisions. Republicans covered the cost to the Treasury with a variety of spending cuts and revenue increases. Those items included a pay freeze for federal civilian employees, Medicare premium increase for high-income taxpayers and the sale of portions of the wireless spectrum. The House bill also would have cut the maximum length of expanded unemployment benefits to 59 weeks from 99 weeks and allowed states to conduct drug tests for benefits recipients.

Senate leaders tried Dec. 16 to negotiate a bipartisan agreement, and they discussed a yearlong extension as well as an 11-month version that would push further decisions past the election. They disagreed about how to pay for the bill, with Republicans favoring spending cuts and Democrats supporting a surtax on income exceeding $1 million.

The Senate-passed $33 billion, two-month agreement was paid for by raising the guarantee fees that Fannie Mae, Freddie Mac and the Federal Housing Administration charge to lenders for new mortgages.

The plan passed the Senate 89-10 on Dec. 17 with the backing of Republican leaders. Republicans claimed credit for adding language that would require President Barack Obama to decide within 60 days whether to approve a permit for TransCanada Corp.’s Keystone XL oil pipeline from Canada.

The bill is HR 3630.


Bloomberg News


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