Bloomberg News

House to Vote on Payroll Bill as Senate Eyes Tax Sweeteners

December 13, 2011

(Updates with Reid comments, explanation of tax breaks starting in second, sixth paragraphs.)

Dec. 13 (Bloomberg) -- The Republican-controlled U.S. House of Representatives will vote today on extending an employee payroll tax cut, putting pressure on the Senate and continuing a year-end legislative fight affecting workers’ paychecks.

The White House threatened to veto the House measure, and Democrats are resisting Republicans’ attempt to use it as a vehicle to revamp the unemployment compensation system and expedite a Canadian oil pipeline. Senate Democratic leader Harry Reid gave the first hint of his next step today, saying he would add $35 billion in extensions of miscellaneous tax breaks to a payroll tax cut.

“Until you make the move, they won’t make a move,” said Representative John Campbell, a California Republican, in an interview. “And then we can’t make another move until they make theirs. So it’s day-by-day, if not hour-by-hour.”

The House vote is scheduled for this afternoon in Washington, and Republican leaders said they expect the measure to pass. Senate Democrats may bring it up for a vote today or tomorrow to show that it can’t get the 60 votes needed to overcome procedural hurdles in that chamber, said a leadership aide who spoke on condition of anonymity to discuss strategy.

Education Funds

A White House message said the House bill would endanger education and clean energy funds, and would be funded by working people while “giving a free pass to the wealthiest and to big corporations.” The statement didn’t mention the Keystone XL pipeline, which would link Canada’s oil sands with Texas refineries.

The miscellaneous expiring breaks, which include incentives such as a research and development tax credit and a benefit for banks’ overseas operations, expire Dec. 31. They include the ability to deduct state sales taxes and accelerated depreciation for some restaurants and motorsports tracks. Companies such as General Electric Co., Whirlpool Corp., Microsoft Corp. and Xerox Corp. support for extension of some of the items in the package.

“They’re extremely important,” Reid said today of the tax breaks, without specifying which he would seek to extend in the package. “They’re job creating.”

‘Ideological Candy’

Reid, a Nevada Democrat, said at a news conference that the House bill is loaded with “ideological candy” that he would reject.

“They’re really wasting time catering to the Tea Party folks over there when they should be working with us on a bipartisan package that can pass both houses,” Reid said. “We’ve offered solutions, a series of good-faith proposals with bipartisan support.”

House Republicans, meanwhile, were rallying around their proposal.

“It’s a job creator and that’s what we’ve been focused on,” said Representative Lynn Westmoreland, a Georgia Republican, in an interview.

Democrats and Republicans remain far apart over the details of extending the payroll tax cut for a year and how to pay for it. After today’s vote, House and Senate leaders may begin negotiating legislation that could pass both chambers before the payroll tax cut expires Dec. 31.

“I haven’t gotten to the final chapter to see how it all turns out,” Senator Ben Nelson, a Nebraska Democrat, told reporters.

Next Move

House Speaker John Boehner told reporters today that he would consider his next move after the Senate acted.

If the break isn’t extended by Dec. 31, employees will begin paying a 6.2 percent tax on their first $110,100 in wages in January, up from 4.2 percent this year. The payroll tax funds Social Security.

The House bill also extends expanded federal unemployment benefits and prevents doctors’ reimbursements under Medicare from being reduced as scheduled in January. It includes a pay freeze for federal civilian workers, more stringent income- eligibility requirements for Medicare benefits and a move toward a 59-week limit on unemployment benefits, down from 99 weeks today.

Dec. 16 Deadline

Republican leaders said Reid is seeking commitments from Republicans about how to resolve the payroll tax legislation before he signs off on an agreement that would fund government agencies for the rest of the fiscal year. Unless Congress acts, funding for the government will expire Dec. 16.

“I’m hopeful that the Senate leaders will come to their senses,” Boehner said. “There’s no reason to hold this bill up.”

Senate Democratic leaders hardened their opposition to the House Republican measure before today’s vote. Richard Durbin of Illinois, the Senate’s No. 2 Democrat, said lawmakers must cover the cost of extending the payroll tax cut with new revenue instead of spending cuts. Republicans have blocked Senate Democrats’ proposals to pay for the payroll tax cut by imposing a surtax on income exceeding $1 million a year.

“If we do pay for it, it’s going to be paid for with a revenue source, such as the millionaire’s tax,” Durbin said in an interview yesterday. “It’s not going to be paid for with spending cuts.”

Keystone Pipeline

One of the most significant areas of disagreement is whether to include language expediting the approval of TransCanada Corp.’s Keystone XL pipeline.

The $202.4 billion Republican bill, sponsored by House Ways and Means Committee Chairman Dave Camp, a Michigan Republican, would require a decision on the issue within 60 days. The Obama administration has pushed back issuance of a permit to 2013, a move Republicans criticize as designed to delay action until after the 2012 election.

Obama said Dec. 7 that he would reject linking the pipeline to extension of the payroll tax cut. White House press secretary Jay Carney said yesterday that including the Keystone issue in the payroll tax cut bill sends the message that “there’s a political trade-off to be had that extending tax cuts for middle-class and working Americans should only occur in return for a political gift, or an ideological item.”

“We simply disagree,” Carney said.

‘Arbitrary’ Decision

Boehner said he wouldn’t rule out negotiating a compromise with Democrats if they reject the Keystone provision. Still, he dismissed criticism that the House bill imposes an arbitrary deadline for the administration to act on the pipeline.

“The only thing arbitrary about this decision is the decision by the president to say ‘Well, let’s wait until after the election,’” Boehner said.

The House bill is H.R. 3630.

--With assistance from Roger Runningen, Kathleen Hunter, James Rowley and Laura Litvan in Washington. Editors: Jodi Schneider, Justin Blum

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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