Congress Approves Short-Term Extension of Payroll Tax Cut

Both the House and Senate today approved a payroll tax cut extension after House Republicans finally bowed to pressure from members of their own party and agreed, with minor changes, to allow a vote on a bill that had bipartisan support in the Senate.

Hot Feature: Italy’s Senate Approves €30B Austerity and Growth Package

Under a deal reached between House and Senate leaders, the House approved a two-month extension of a payroll tax holiday and unemployment benefits that the Senate approved last Saturday, and the Senate will appoint members of a House-Senate conference committee to negotiate legislation that would extend both benefits through the end of 2012.

House Republicans rejected an almost identical bill on Tuesday, but worried that the blockade, which threatened to raise payroll taxes by 2 percent, would do serious damage to their appeal to voters.

House Speaker John Boehner, determined to put the issue behind his party, announced his decision to support the Senate’s bipartisan bill, later conceding to reporters that it might not have been “politically the smartest thing in the world” for House Republicans to have positioned themselves between a tax cut and the 160 million American workers who would benefit from it.

Under the deal, an employee’s share of the Social Security payroll tax will remain at the current level, 4.2 percent of wages, through February 29. Without Congressional action, the tax would revert to the usual 6.2 percent next month, costing Americans an average of $1,000 more a year. The government will also continue paying unemployment insurance benefits under the current policy through February. Without Congressional approval, many of the nation’s unemployed would begin losing benefits next month.

The deal will continue paying Medicare doctors at current rates for the next two months, at least temporarily averting a 27 percent cut that would otherwise go into effect on January 1.

In exchange for supporting the two-month extension, Republicans secured only minor, face-saving concessions from Senate leaders. The deal makes minor adjustments to payroll tax reporting requirements meant to lessen the burden on small businesses of implementing the two-month tax cut, as well as measures to prevent manipulation of an employee’s pay should the tax cut extension fail to go beyond two months.

Republicans also wrested what they considered a key provision, which would require Obama to decide within the next 60 days whether to allow construction of an extension of the controversial Keystone XL oil pipeline, which now stretches from Alberta, Canada, to Oklahoma.

The Senate passed the bill, which contained only minor changes to that passed on Saturday and rejected by the House on Tuesday, and the House followed with its approval half an hour later. The House approved the deal without objections this morning in a pro forma session. Had an objection been raised on the floor, Boehner would have had to summon the full House back next week for a formal vote.

Don’t Miss: U.S. Mortgage Rates Drop to New Record Low