Prospects for Payroll Tax Cut Are Grim After House Republicans Reject Temporary Extension

The U.S. House of Representatives rejected on Tuesday a bipartisan Senate compromise to extend a payroll tax cut for two months in order to buy lawmakers more time to negotiate a longer extension before the tax cut enjoyed by 160 million workers expires at the end of the year.

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Voting 229 to 193, the Republican-controlled House rejected the Senate’s bill while requesting a formal conference with the Senate. The Democrat-controlled Senate and President Barack Obama have been pushing the House to approve the short-term plan since reaching an impasse over how to extend the cut for the full year.

The rejected Senate bill would not only have extended the payroll tax cut, at least for the near-term, but would also have temporarily extended unemployment benefits and postponed a scheduled cut in reimbursement rates for doctors who treat Medicare patients.

House Minority Leader Nancy Pelosi (D-Calif.) said ahead of the procedural votes that shelved the Senate bill that Republicans were the only ones “standing in the way of a tax cut for the middle class” and unemployment benefits for millions of Americans.

House Majority Leader Eric Cantor (R-Va.) argued that the two-month extension would be bad policy, and said that the Senate, which has already adjourned for the holidays until January 23, should return to Washington to negotiate the issue in a formal conference committee.

“Families, employers and workers can’t live their lives month to month,” Cantor said. “Washington needs to stop adding confusion and more uncertainty to people’s live.”

However, whether negotiations will continue before the tax cut expires is uncertain, as Senate Democrats already said that, if the House were to reject the deal that had been adopted in the Senate on an 89 to 10 vote, it would amount to nixing the tax cut.

Republicans resisted the two-month deal in hopes of effecting a one-year extension of the aforementioned tax cut and benefits, but propose offsetting the costs of doing so. Republicans were unable to win over Democrats on spending cuts and freezing government employees’ paychecks, as was proposed in a bill passed in the House last week, and that bill was quickly rejected by the Senate.

In an effort to win over conservatives who opposed another holiday for a tax that funds Social Security, House Speaker John Boehner (R-Ohio) had also attached to the package a series of other Republican priorities, including a provision that would require the Obama administration to make a quick decision on the controversial Keystone XL oil pipeline, leading to accusations from both parties that the House bill represented the sort of Washington dealmaking that makes the public hate and distrust Congress.

In fact, it seems that Democrats are being viewed more favorably of late, at the expense of the Republican party, which many blame for Congress’s inefficacy. In a Washington Post-ABC News Poll, voters said they trusted Obama to do a better “job handling taxes” than Republicans by a margin of 46 percent to 41 percent, a dramatic swing from two months ago, when voters favored the GOP, 46 percent to 39 percent.

After the Senate rejected the House’s bill last week, Boehner accurately predicted that the House would in turn reject the Senate’s bill and seek to re-open negotiations over how to pay for a $120 billion full-year extension of the tax cut. Boehner said publicly on Sunday that he, too, was opposed to the Senate measure.

GOP critics of the Senate’s two-month deal say it would not solve the larger problem of stimulating the economy, and at least should be a 90-day extension so as to match the quarterly schedule on which many corporations pay taxes. But Senate Majority Leader Harry Reid (D-Nev.) says a two-month deal would provide time for the parties to work out a deal for the entire year.

“I will not reopen negotiations until the House follows through and passes this agreement that was negotiated by Republican leaders, and supported by 90 percent of the Senate,” said Reid.

But Senate Minority Leader Mitch McConnell (R-Ky.), who rallied support among members of his own party for the Senate measure, is now calling for the House and Senate to appoint a conference committee to work out differences between the bill passed last week in the House and the Senate’s two-month deal. Whether the Senate will reconvene before the New Year remains to be seen.

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