Despite partisan divide, Congress likely to extend payroll tax cut

McClatchy NewspapersDecember 2, 2011 

WASHINGTON — Sometime just before Christmas, Congress is expected to approve extending this year's 2 percentage point Social Security payroll tax cut and to stave off a huge cut in Medicare payments to doctors.

It also may extend expiring federal unemployment benefits.

But first, lawmakers have to figure out how to pay for all this — or allow the federal budget deficit to grow. So far, there's been little movement toward agreement.

Instead, lawmakers have renewed the kind of bitter partisan feuding that's dominated this legislative year — and sent Congress' approval ratings plunging to single digits.

Democrats want a surtax on millionaires to pay for the Social Security tax break. Republicans said no, so Democrats are branding Republicans as pawns of the rich. And because many GOP lawmakers won't agree to extra jobless aid unless it's paid for, Democrats are painting them as heartless.

Republicans fire back, saying that President Barack Obama and his fellow Democrats are tax-raisers who made the nation's economic mess worse and now want to apply a few Band-Aids that will do nothing to put the country on a path to economic health. Cutting other federal spending is the way to pay for the new initiatives, the GOP insists.

Despite this familiar back and forth, in the quieter Capitol offices and corridors there's cautious optimism that agreements will be reached, at least on extending the tax cut and the Medicare fix, perhaps as soon as Dec. 16, when Congress hopes to adjourn.

"The one thing I'm sure they're going to find common ground on is tax cuts. After all, it's a tax cut," said Stan Collender, a veteran Washington budget analyst.

He's less confident about the jobless benefits. Collender noted that those affected "aren't usually Republican voters," and GOP House Speaker John Boehner of Ohio has reiterated his view that any plan must be paid for.

President Obama said Friday that he and Congress should work through Christmas if necessary to reach agreement on extending a payroll tax cut and jobless benefits past Dec. 31.

"We're going to keep pushing Congress to make this happen," he said. "We need to get this done. And I expect that it's going to get done before Congress leaves. Otherwise, Congress may not be leaving, and we can all spend Christmas here together."

Three major issues have to be resolved:

SOCIAL SECURITY TAX: Employees this year pay 4.2 percent of wages up to $106,800, 2 percentage points below the 2010 level. Unless that rate's extended, the tax reverts to 6.2 percent Jan. 1, which workers will pay next year on the first $110,100 of wages. Estimated cost of continuing the break: About $112 billion. Democrats want rates of 3.1 percent for both employers and employees next year. Republicans have signaled they're willing to extend this year's rate, but no more.

MEDICARE: Under current law, Medicare payments for physician services will drop 27.4 percent in January, unless Congress acts. Estimated cost: About $11 billion.

UNEMPLOYMENT INSURANCE: Regular benefits are available for up to 26 weeks, but in states with higher unemployment rates, the jobless can get more aid. Currently, authority for up to 73 additional weeks expires at the end of the year, and an estimated 2.1 million people could lose benefits through mid-February. Estimated cost of continuing the program: About $56 billion.

On Thursday, a Senate Democratic effort to impose a 3.25 percent surtax on millionaires got 51 votes, nine less than needed to cut off debate.

A Republican alternative also failed. It would have retained the 2011 tax cut while freezing federal pay and cutting the federal workforce substantially. It lost badly, winning only 20 votes from the GOP's 47 senators.

House of Representatives Republicans met privately Friday and heard their leaders outline a plan to combine the expiring provisions into one bill. It would be paid for by a series of undisclosed spending cuts.

Lawmakers present said concerns were expressed about the payroll tax cut hurting Social Security's long-term funding. Others were reluctant to endorse more unemployment benefits without major systemic changes.

One option most Republicans will not buy — but many Democrats would — is to increase the federal deficit.

"It's not huge in the overall scheme of things," Brian Bethune, an economist at Amherst College in Massachusetts, said of the extra cost. The nonpartisan Congressional Budget Office expects this fiscal year's deficit to reach $973 billion.

Some Democratic constituencies, notably labor unions, are pushing to have the jobless benefits extended and add the cost to the deficit, as usual.

Boehner refuses. But he, like most others at the Capitol, is trying to stay confident.

"It's just that I do believe there's enough common ground between where the White House and Democrats are and where Republicans are for us to move this legislation," he said.

ON THE WEB

Senate roll call on Democratic plan

Senate roll call on Republican plan

Congressional Budget Office on Medicare "doc fix"

Debt reduction deal

Domenici-Rivlin report

Bowles-Simpson report

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McClatchy Newspapers 2011

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