Payroll Tax Cut: Ironing Out The Final Details

Published February 16, 2012 2:54AM (EST)

WASHINGTON (AP) — Calling quits to a bruising election-year fight, negotiators on Capitol Hill worked into Wednesday night trying to iron out final details of an agreement to extend a cut in the payroll taxes paid by most Americans. The legislation also would renew jobless benefits for millions more.

The $150 billion measure taking shape represents a tactical retreat for Republicans, who are generally unenthusiastic about the legislation but eager to move beyond the issue. With campaign season starting, they don't want President Barack Obama and Democrats in Congress to be able to claim the GOP was standing in the way of a middle-class tax cut.

Lawmakers hoped to officially unveil the measure Wednesday night so it could be voted on Friday in the House and then quickly pass the Senate. It would represent a rare burst of bipartisanship in a bitterly divided Congress.

But aides said a key Democratic negotiator, Sen. Ben Cardin of Maryland, had yet to agree to the measure because of a provision requiring federal workers to contribute more to their pensions. The provision was included to help pay for or "offset" extending unemployment benefits.

It was unclear whether the issue would be resolved Wednesday.

"They are still talking," Cardin spokeswoman Sue Walitsky said. "Sen. Cardin continues to work with his colleagues to ensure the fairness of the offsets."

The legislation would continue a 2 percentage point cut in the Social Security payroll tax, renew jobless benefits averaging about $300 a week for people languishing for long periods on unemployment rolls and protect doctors from a huge cut in their Medicare reimbursements.

Obama was getting his licks even as talks neared a conclusion.

"I'm glad to see that Congress seems to be ... making progress on extending the payroll tax cut so taxes don't go up on all of you and 160 million working Americans," he said at an appearance at a lock factory in Milwaukee. "It will make a real difference in the lives of millions of people."

The measure carries a price tag of roughly $150 billion over the coming year, partly financed through requiring federal workers to contribute an additional 1.5 percent of their earnings toward their pensions. That provision, bitterly fought by federal unions, would generate $15 billion over the coming decade.

Auctions of portions of the communications spectrum to wireless companies would net another $15 billion or so — even after $7 billion is set aside to construct and run a new public safety network for emergency first responders.

Extending the payroll tax cut and renewing long-term jobless benefits were key planks in Obama's jobs program, which was announced last September but has been largely ignored since. The measures are intended to help the economy by giving people more money to spend, fattening a typical bimonthly paycheck by $40 or so and giving the unemployed critical cash that most of them turn around and spend immediately.

The measure also includes a key adjustment to the badly broken Medicare payment formula for doctors, which would otherwise impose a 27 percent cut on March 1 under a 1997 budget law. The $20 billion cost would be covered in part by cuts to a fund created under Obama's health care law that awards grants for preventive care and by curbs on Medicaid payments to hospitals that care for a disproportionate share of uninsured patients.

House Speaker John Boehner, R-Ohio, said the legislation would probably be voted on by the end of the week. GOP leaders had jump-started the talks over the weekend by dropping a demand that the tax cut be paid for with spending cuts. On Monday, Republicans upped the ante by threatening to advance the payroll tax cut on its own — and leave jobless benefits and the Medicare fix behind, which set off alarms with Democratic lawmakers and at the White House.

"We were not going to allow the Democrats to continue to play political games and raise taxes on working Americans," Boehner told reporters. "We made the decision to bring them to the table so that the games would stop and we would get this work done."

Some rank-and-file Republicans continue to grumble that the measure is flawed and that the payroll tax cut, first enacted in December of 2010, has done little to prop up the economy. But the prevailing instinct among Republicans was political survival and not wanting to look like they were getting in the way of an election-year tax cut.

"Not going to do this again, but if it gets us through the year, gets this issue off the table, it's worth doing this way," said Sen. Lindsey Graham, R-S.C.

The final snag, aides said, had involved a spat over new auctions of wireless spectrum, a key provision required to help defray the $30 billion cost of extending jobless benefits. House Republicans moved in the Democrats' direction on the amount of money dedicated to creating a new public safety communications network for first responders.

Republicans claimed victory in reducing the number of weeks of jobless benefits that workers would be eligible to receive. The maximum number in states with the highest jobless rates would be cut from 99 weeks to 73 weeks by the end of the year, according to aides in both parties. Republicans had wanted to cut the maximum to 59 weeks.

But in states with particularly high unemployment, such as Rhode Island and Nevada, the measure is actually more generous over the next few months than current law.

Negotiators also dropped House-passed language that would have forced low-income people to have Social Security numbers in order to get government checks by claiming the children's tax credit, a move that was aimed at illegal immigrants and caused a furor among many Hispanics.

Republicans also dropped a proposal requiring unemployed people to seek high school equivalency degrees to obtain benefits. But a GOP provision requiring jobless people to be more diligent in job searches as a condition of receiving benefits was included.

The measure also would prevent welfare recipients from using their electronic benefits cards to withdraw money at ATMs in strip clubs, casinos and liquor stores.

By Salon Staff

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