Congress Votes on Payroll Tax Cut

Deal cuts emergency jobless benefits to 73 weeks, from 99.

The $145 billion payroll tax cut deal is heading toward passage in the U.S. Congress as soon as today with bipartisan support, including from many lawmakers who will be voting for ideas they oppose.

“This is real money that will make a real difference in people’s lives,” President Barack Obama said in a statement last night. “I will sign it into law” as soon as Congress passes it.

The agreement would extend the expiring tax cut, unemployment benefits and doctors’ Medicare reimbursements through 2012. It contains health-care cuts opposed by Democrats and an increase in the budget deficit disliked by Republicans, and those policies already have prompted many lawmakers to announce their opposition.

“If there’s an agreement with the other side, then there’s going to be enough votes,” said Representative Tom Cole, an Oklahoma Republican. Despite objections to some parts of the bill, he said, “I don’t think it’s going to change the outcome.”

Negotiators led by Democratic Senator Max Baucus and Republican Representative Dave Camp reached an agreement early yesterday after Obama intervened to reassure Democrats wary of the effects of pension changes on federal employees. The deal ended a months-long stalemate over the payroll tax cut and the other expiring provisions.

In announcing the agreement, Democrats claimed victory for avoiding cuts to Medicare beneficiaries and for getting Republicans to drop demands that the bill be fully financed with spending cuts elsewhere in the budget. The House planned to complete action on the bill by midday.

Republicans said they won by reducing emergency unemployment benefits to a maximum of 73 weeks from a maximum of 99 weeks and preventing Democrats from raising taxes.

“You don’t have all the leverage, so you have to work with what you have,” said Representative Greg Walden, an Oregon Republican who helped negotiate the agreement.

The bill would extend a two-percentage-point cut in the payroll tax funding Social Security through 2012. Employees would pay 4.2 percent of their wages, down from the typical 6.2 percent, for all wages up to $110,100.

The tax break would cost $93.2 billion, which would be borrowed and then transferred from the general fund to Social Security. The cost of the measure’s other provisions would be covered by spending cuts and other changes, and the bill would increase the deficit by $89 billion over the next decade, according to the Congressional Budget Office.

 

‘Fair Agreement’

House Speaker John Boehner called the deal a “fair agreement” and said he would support it.

“But let’s be honest: This is an economic relief package, not a bill that’s going to grow the economy and create jobs,” said Boehner, an Ohio Republican, at a news conference.

Some lawmakers said yesterday that they will vote against the proposal, and opposition from both parties means that House Republicans and Senate Democrats, who hold the majorities, will need votes from members of the other party in their chamber.

“We’re going to need some significant Republican votes,” Senator Charles Schumer of New York, the chamber’s No. 3 Democrat, told reporters yesterday.

Senator Mark Warner, a Virginia Democrat, said in an interview he had “grave concerns” about adding the cost of the payroll tax cut to the budget deficit.

“Now that we’ve handed out this political candy, it’s going to be hard to take it back,” said Senator Jim DeMint, a South Carolina Republican, in an interview. He said he plans to vote no.

The $30 billion unemployment extension would gradually reduce the number of weeks that recipients can receive benefits, down from the current 99 weeks, according to separate summaries provided by Democrats and Republicans on the House Ways and Means Committee. By the end of the year, most states would offer maximum benefits for 63 weeks while people in high-unemployment states would be eligible for 73 weeks of benefits.

According to summaries of the legislation, the bill would make other changes to unemployment policy, such as allowing states to require drug tests of some benefit recipients.

Representative Sander Levin of Michigan, the top Democrat on the Ways and Means Committee, said in a statement he was pleased the agreement wouldn’t require recipients to seek high-school equivalency degrees.

“It is far from perfect, but it does maintain vital benefits for those who have lost their jobs through no fault of their own,” Levin said.

 

Spending Cuts

The bill includes revenue-raising provisions and spending cuts to cover the cost of the unemployment and Medicare extensions.

These include the $15 billion auction of a portion of the wireless spectrum and a $15 billion requirement that new civilian federal employees and members of Congress pay more for their pensions. The pension change would require employees hired starting in 2013 to contribute an additional 2.3 percentage points of their wages toward their pensions, according to the Finance Committee.

The legislation doesn’t include higher fees that Fannie Mae and Freddie Mac charge to lenders for new mortgages. Lawmakers had been discussing that idea.

Obama intervened in the final negotiations, telephoning Democratic Senator Ben Cardin and Representative Chris Van Hollen, both of Maryland, to urge them to support the agreement although it would require newly hired federal workers to pay more for pensions.

Cardin said Obama assured him that federal employees’ salaries and benefits wouldn’t be a routine source of spending cuts for future legislation. Many federal workers live in his district outside Washington.

“He understands my concern about the federal workforce and how I want to make sure that we don’t repeat what’s going on in this conference as we go through this Congress,” Cardin said in an interview.

Cardin said he decided to sign the agreement after speaking with Obama and securing a change to exempt current federal workers from the increased contribution requirement. Obama spoke with Van Hollen about the pension requirement, according to a Democratic aide with knowledge of the conversation who spoke on condition of anonymity because the discussions were private.

Hospitals will bear much of the cost of the bill. They will lose about $11 billion in government payments for bad debt, incurred when Medicare patients don’t make co-payments or pay deductibles, and for charity care.

Clinical laboratories such as Laboratory Corporation of America Holdings will take a 2 percent Medicare payment cut in 2013, according to congressional documents.

Louisiana will surrender about $2.5 billion the state was set to collect in higher payments for its Medicaid program, a policy enacted in 2010 as part of the health-care overhaul at the behest of Senator Mary Landrieu, a Louisiana Democrat.

The agreement also would trim $5 billion over a decade from a $2 billion-a-year fund created by the 2010 health-care law to support community preventive and public health-care programs.


 

Bloomberg News

 

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