Congress Debates Payroll Tax Cut Extension

Congressional Democrats are putting pressure on Republican leaders to reach a deal to extend a payroll tax cut for employees before it expires on December 31.

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While Democratic party lawmakers and President Barack Obama’s administration are “all singing from the same hymnal like never before” in backing an extension of the payroll tax cut, according to Senator Charles Schumer (D-N.Y.), House Speaker John Boehner (R-Ohio) is having difficulty cobbling together a consensus on continuing the tax cut among his Republican ranks.

With just 23 days before the 2 percentage point cut in the payroll tax expires, Democrats are determined to gain Republican support without making concessions as they have been forced to agree to in other fiscal deals over the past year.

“I’m hopeful that people are not going to be in a position to jump at something that’s sub-optimal,” said Representative Earl Blumenauer, an Oregon Democrat who sits on the Ways and Means Committee. Democrats are in a “strong position, and I would hope people would be clear and firm.”

Senate Majority Leader Harry Reid (D-Nev.) said yesterday that he will keep the Senate in session through the upcoming holidays if an agreement on the tax cuts isn’t reached by then. Obama told Reid and other Democratic leaders at the White House yesterday that he would postpone his holiday vacation to Hawaii if there isn’t a deal.

Obama said yesterday he would reject any effort by congressional Republicans to tie extension of the tax cut to accelerated approval of the Keystone XL pipeline that would run from Canada to the U.S. Republican leaders in the house have considered such a linkage to gain support within their caucus for the payroll tax extension.

Boehner is expected to meet with House Republicans today to determine their level of support for the payroll tax cut extension. Representative Steve LaTourette (R-Ohio) said his party’s leaders are trying to gather enough support for the extension within their own caucus so they don’t have to rely on Democratic votes to pass it. If they can find 218 Republican votes to ensure chamber passage, they will be better positioned for negotiations with the Senate on the final version of a bill, said LaTourette.

A 12.4 percent payroll tax that funds Social Security was once evenly split between employers and employees, but the portion paid by workers was lowered to 4.2 percent in 2011 while the employer portion remained at 6.2 percent. Unless Congress acts, workers in 2012 would again face a payroll tax of 6.2 percent of their wages up to $110,100.

Legislation proposed by Senator Robert Casey (D-Pa.) would low the payroll tax paid by workers even further, to 3.1 percent, and cover at least part of the $185 billion cost by imposing a 1.9 percent surtax on income exceeding $1 million. An earlier Democratic bill with a surtax was blocked in the Senate last week.

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If the payroll tax cut isn’t extended, economists such as Mark Zandi of Moody’s Analytics Inc. have predicted that U.S. gross domestic product would shrink half of one percentage point in 2012.