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Competing Payroll Tax Bills Both Rejected by Senate

Dec 05, 2011

By Sam Goldfarb and Ben Weyl, CQ Staff

The contours of the debate over preserving a year-old Social Security payroll tax cut came into focus last week, with senators from both sides of the aisle embracing an extension of the benefit even as they disagreed over how to pay for it. The dispute over offsets sank two bills in the Senate, one each by the Democrats and Republicans.

That turns attention to the House, where Speaker John Boehner (R-OH) made a pitch for extending the payroll tax cut at a GOP caucus meeting December 2 and was generally met with a chilly reception. Some Republicans don’t want to extend the payroll tax cut, citing its cost, among other factors.

Making clear that neither party has the final answer on the issue, the Senate on December 1 rejected a motion to proceed to the Democrats’ bill (S. 1917) by a vote of 51-49, short of the 60 votes required. A similar motion on the GOP version (S. 1931) was rejected, 20-78, with only 20 Republicans — not even a majority of the GOP caucus — voting in favor.

The Democrats’ bill would pay for a one-year extension of the payroll tax break with a 3.25 percent surtax on those with incomes above $1 million. That proposal is anathema to Republicans, who argue that many of those affected would be small businesses, which are critical to creating new jobs. Senate Minority Leader Mitch McConnell (R-KY) called the proposed surtax “purely political and not intended to do a thing to help the economy.”

Democrats say the surtax is a basic issue of fairness. “If Republicans are going to vote against this, they have to explain why they have so energetically fought to protect tax cuts for millionaires and billionaires,” White House Press Secretary Jay Carney said.

Republicans offered their own version, with an alternative way to pay the costs, after Democrats and President Obama had attacked the GOP for weeks for holding back on extending the tax holiday. They threatened to turn it into a campaign issue, arguing that allowing the tax break to expire would cut into middle-class income and endanger the economy’s fragile recovery.

The tax holiday was created last December as part of a law (PL 111-312) that extended George Bush-era tax cuts. It reduced the employee share of the Social Security tax to 4.2 percent from 6.2 percent, with no offsets. The provision expires December 31.

The Democrats’ bill would broaden the provision by further reducing the employee share to 3.1 percent and cutting the employer share to 3.1 percent from 6.2 percent for the first $5 million of a company’s wage costs. As an incentive for hiring, it would also eliminate the employer’s share for the last quarter of 2011 and all of 2012 on the first $5 million of a company’s increased cost of wages.

Republicans’ Counteroffer

The GOP measure is a one-year continuation of the 2010 tax cut, paid for by extending the current pay freeze for federal workers for three years beyond 2012. Republicans also want to shrink the number of federal civilian workers by 10 percent by 2015 through attrition.

The bill would also require taxpayers with annual earnings above $1 million to pay higher premiums for Medicare and bar them from receiving unemployment or food stamp benefits. And it would create an option on tax forms for millionaires to pay more tax than they owe if they so choose.

“This bill will provide some relief to struggling workers who continue to need it, but without raising taxes on job creators,” McConnell said in a statement.

The bill would not meet Democratic demands that the tax cut be enlarged for workers and broadened to cover employers.

Extending the payroll tax cut is one part of Obama’s much larger, $447 billion jobs proposal. Senate Republicans already have blocked the broader plan (S. 1549).

In spite of the public displays of partisanship, aides to House and Senate leaders say progress has been made behind closed doors toward an agreement that would renew the payroll tax cut and one or two other expiring programs, such as benefits for long-term unemployed workers and preventing a substantial reduction in Medicare payments to doctors.

Such an agreement is likely to carry a high price tag. Extending the payroll tax cut for 12 months would cost about $120 billion, while renewing jobless benefits might cost around $50 billion. A so-called “doc fix” is estimated to cost at least $20 billion.

Striking a deal may prove difficult, however, largely because Boehner has been more insistent than Senate Majority Leader Harry Reid (D-NV) that any end-of-year bill not add to the deficit. At a news conference December 1, Boehner said preserving the employee tax break would help the economy. But, he continued, “it’s important that the payroll tax cut be paid for because that money is used to fund the Social Security trust fund, which is already facing imminent bankruptcy.”

Boehner also said that a renewal of long-term jobless benefits should be offset with spending cuts, and that preventing a reduction next year in the Medicare payment rate for doctors should be done in “a fiscally responsible way.”

Speaking to reporters the same day, Reid agreed that the payroll tax cut should be offset. But he said that continuing jobless benefits is an emergency and should not be subject to the same budgetary constraints.

Obama administration officials have indicated that they may be willing to negotiate some alternative means of financing the extension.

Any offsets will have to satisfy a significant number of Democrats, who will be needed to pass the bill in the House and the Senate.

Source: CQ Weekly

© 2011 CQ Roll Call All Rights Reserved.

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