Congressional Democrats are making clear they want to focustalks for a one-year extension of a payroll tax cut on an issuethat proved difficult before the latest partisan brawl: whetherhigher taxes for the wealthy should help cover the plan's cost.

Congress yesterday passed a two-month payroll tax-cut extensioneight days before its scheduled expiration after House Republicansdropped their objections under growing political pressure.President Barack Obama signed the measure, and negotiators in bothparties are making plans to start work on a longer-term deal.

Senate Majority Leader Harry Reid, a Nevada Democrat, toldreporters yesterday that a surtax for millionaires may be part ofthe debate, as “everything's on the table.” The third-rankingSenate Democratic leader, Charles Schumer of New York, was moredirect on Dec. 22 about seeking new taxes on higher earners, aproposal rejected by House and Senate Republicans.

“Look, we think that's the fairest way to go because everyonehas to give a little bit here, and those at the highest incomelevels, over a million-dollar incomes, have done the best in thiseconomy,” Schumer said on CNN's “The Situation Room.” He said, “Sothat should still be on the table.”

Their remarks reflect the tough task of negotiating a longerextension of the payroll tax cut during an election year that willfeature a debate over tax and fiscal policy, particularly whetherto extend the $4 trillion in expiring income tax cuts first enactedunder President George W. Bush. The payroll tax talks will centeron a much smaller $200 billion extension.

Yesterday lawmakers were focused on a short-term agreement thatwill continue the 2-percentage-point payroll tax cut throughFebruary. Without a deal, the current tax cut would have expiredDec. 31, reducing take-home pay for 160 million U.S. workers.

“This is some good news, just in the nick of time for theholidays,” said Obama, who signed the legislation yesterday. “WhenCongress returns I urge them to keep working without drama, withoutdelay, to reach an agreement” on extending the tax cut for all of2012, he said.

Similar to a plan passed by the Senate Dec. 17, the measureObama signed extends the 4.2 percent payroll tax, continuesexpanded unemployment benefits and heads off a reduction inMedicare payments to doctors through February. It also calls onObama to accelerate his decision on the Keystone XL oil pipelinefrom Canada.

Shutdown Threats

The agreement capped a year of partisan battles marked bythreats to shut down the federal government and default ongovernment debt obligations. House Republicans backed down on theirobjections to the bill after attacks from Obama, congressionalDemocrats and Senate Republicans angered by the House's push for ayearlong extension.

“I hope this Congress has had a very good learning experience,especially those who are newer to this body,” Senate MajorityLeader Harry Reid, a Nevada Democrat, told reporters after hischamber's action yesterday. “It seems that everything we've donethis past year has been a knock-down, drag-out fight. There is noreason to do that.”

The agreement doesn't resolve the deep divide over how to coverthe cost through 2012.

As Democrats seek higher taxes on the wealthy, Republicans wantto cut the federal workforce and freeze pay for governmentemployees, among other spending-cut options.

Other issues also may arise. Republicans want to attach policiessuch as a rewrite of the unemployment insurance system or weakerrules for industrial emissions — both opposed by Democrats.Republicans want to let states drug-test people who receiveunemployment benefits and require them to make progress towardearning a high school diploma.

Both parties agree on one matter, saying they want to eliminatelower reimbursements for doctors under Medicare. A two-year fix,averting a 27 percent cut effective Jan. 1, was included inHouse-passed legislation.

“We passed, in our bill, two year's worth of a doc fix so thatphysicians would not have their Medicare reimbursements cut,” saidRepresentative Renee Ellmers of North Carolina, one of theRepublican negotiators, said Dec. 22. “Our seniors need to knowthat they can receive that good health care and continue to doso.”

Taxes for Wealthy

The issue of higher taxes for the wealthy has been divisive inthis year's debate over Obama's $447 billion jobs plan, whichincluded a payroll tax-cut proposal. Few of the plan's elementsbecame law, in part because of a push in the Democratic-controlledSenate to offset costs with a “millionaires' surtax” opposed byRepublicans. Democrats control 53 Senate seats, seven short of the60 needed to overcome delaying tactics by opponents oflegislation.

Republicans might be in a weaker position in 2012. SenateRepublican leader Mitch McConnell of Kentucky has been unable toadvance an alternative approach on the payroll tax cut, in partbecause some members of his caucus don't think it's the best way tostimulate the economy.

Boehner's task also may be more difficult.

“I don't think it's a time for celebration,” he told reportersthis week. “Our economy is struggling. We've got a lot of workahead of us in the coming year.”

Some Republicans were pleased to see that Boehner cut hislosses.

“The great danger would have been if we continued,” saidRepresentative Tom Cole of Oklahoma. “We made our points. We'vegotten some modifications.”

Some House Republicans said yesterday they didn't believeBoehner's agreement to pass the two-month extension put him inimmediate danger of losing the support of his House Republicanmajority.

Representative Sean Duffy, a freshman Republican from Wisconsin,said Boehner was trying to reflect the views of his colleagues.Duffy said he is pleased a tax increase will be avoided in Januaryand doesn't think the saga will hurt Republicans in the 2012election.

“I think the American public will look at the economy and jobgrowth and the lack thereof,” Duffy said. “I don't think this is anindicator of what will happen next year.”

Bloomberg News

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