Bloomberg News

Congress Poised to Consider Obama Push to Extend Payroll Tax Cut

December 02, 2011

Nov. 23 (Bloomberg) -- Fresh off the deficit-cutting supercommittee’s impasse, leaders in both chambers of Congress said they are prepared to consider extending the payroll tax cut that is set to expire on Dec. 31.

The U.S. Senate may vote on an extension as soon as next week, Adam Jentleson, a spokesman for Majority Leader Harry Reid, a Nevada Democrat, said yesterday. House Speaker John Boehner said he is open to discussing the expiring payroll cut with the Obama administration.

“We told the president in September that we stand ready to have an honest and fruitful discussion with him regarding the payroll tax extension, and that invitation stands,” Boehner, an Ohio Republican, said in a statement yesterday.

Lawmakers returning to Washington next week after a Thanksgiving break will spend the rest of the year debating crucial tax issues that have divided the political parties. In addition to the payroll tax cut, they must decide whether to extend expanded unemployment benefits and a package of miscellaneous tax breaks that expire Dec. 31.

President Barack Obama spoke at a Manchester, New Hampshire, high school yesterday about the payroll tax cut and said there would be economic consequences if it isn’t extended.

“If Congress refuses to act, then middle-class families are going to get hit with a tax increase at the worst possible time,” he said. “It would be bad for the economy. It would be bad for employment.”

Democratic Leaders

Democratic leaders in the House, including Nancy Pelosi of California, Steny Hoyer of Maryland and James Clyburn of South Carolina, sent a letter to Boehner yesterday pressing him to allow a vote on a payroll tax cut extension.

Tom Porcelli, the chief U.S. market economist at RBC Capital Markets, told Bloomberg Television yesterday that if the break isn’t extended into 2012, “you are literally removing 1.2 percentage points” from U.S. gross domestic product.

The Social Security portion of payroll taxes, which will be levied on the first $110,100 of income in 2012, is split between employees and employers. Each side pays 6.2 percent of wages.

For 2011, the Social Security payroll tax for employees was lowered to 4.2 percent. A worker earning $50,000 a year who is paid biweekly has been saving $38.46 in each paycheck.

This year’s tax break cost the government $111.7 billion in forgone revenue, according to the congressional Joint Committee on Taxation. The U.S. transferred money from the general fund to cover the reduced funding for Social Security.

Employees’ Tax

At a minimum, Obama wants to see the current tax cut for employees extended for 2012. He also has called on Congress to reduce the payroll levy to 3.1 percent for employees and employers. That proposal has languished in Congress.

Republicans including House Ways and Means Chairman Dave Camp of Michigan, who typically support tax cuts, have raised concerns about the cost of extending the payroll provision. Senator Orrin Hatch of Utah, the top Republican on the Finance Committee, and House Budget Committee Chairman Paul Ryan of Wisconsin have said the tax holiday is a bad idea.

Lawmakers haven’t said whether or how they could offset the cost of an extension. Senate Majority Whip Richard Durbin, an Illinois Democrat, has said he might support extending the cuts with an offset.

Boehner also urged Obama to press the Democratic-controlled Senate to vote on House-passed jobs bills. Among the measures are those that would reduce regulation and prohibit the Environmental Protection Agency from issuing rules on greenhouse gas emissions.

--With assistance from Kathleen Hunter in Washington. Editors: Jodi Schneider, Laurie Asseo

To contact the reporters on this story: Steven Sloan in Washington at ssloan7@bloomberg.net; Richard Rubin in Washington at rrubin12@bloomberg.net

To contact the editor responsible for this story: Mark Silva at msilva34@bloomberg.net


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