Bloomberg News

Democrats United on Payroll Tax Cut to Pressure House Leaders

December 14, 2011

Dec. 8 (Bloomberg) -- Congressional Democrats seek to use their unified support of a payroll tax cut for employees to pressure Republican leaders into reaching a deal on an extension before the tax break expires Dec. 31.

Senator Charles Schumer, a New York Democrat, said yesterday that the party’s lawmakers and President Barack Obama’s administration are “all singing from the same hymnal like never before” in backing an extension of the payroll tax cut to prevent a tax increase for the middle class in 2012.

That contrasts, Senate Majority Leader Harry Reid said yesterday, to the difficulties House Speaker John Boehner faces in cobbling together consensus on continuing the tax cut among his Republican ranks.

Meetings among Democrats on the issue “are just a pleasure,” Schumer told reporters.

That hasn’t been the case other times over the past year when Democrats agreed to fiscal deals that included provisions they didn’t like. These included extensions of the 2001 and 2003 tax cuts for all income brackets and agreements on annual funding for government operations and increasing the debt ceiling.

With 23 days before the 2 percentage point cut in the payroll tax expires, Democrats say they are determined to avoid being outmaneuvered again.

‘Sub-Optimal’

“I’m hopeful that people are not going to be in a position to jump at something that’s sub-optimal,” said Representative Earl Blumenauer, an Oregon Democrat who sits on the Ways and Means Committee. Democrats are in a “strong position, and I would hope people would be clear and firm.”

Reid said yesterday he will keep the Senate in session through the upcoming holidays if an agreement on the tax cuts isn’t reached. President Barack Obama told Reid and other Democratic leaders at the White House yesterday that he would postpone his holiday vacation to Hawaii if there isn’t a deal, Reid said.

Obama’s tone hardened yesterday as he said he would reject any effort by congressional Republicans to tie extension of the tax cut to accelerated approval of the Keystone XL pipeline that would run from Canada to the U.S. House Republican leaders have considered such linkage to gain support within their caucus for the payroll tax legislation.

The tax cut “shouldn’t be held hostage” by any other issue, Obama said yesterday after meeting with Canadian Prime Minister Stephen Harper, who supports the pipeline. “This is a big project with big consequences.”

Boehner is expected to meet with House Republicans today to determine the level of support for a payroll tax cut extension. He encountered opposition from a bloc of Republicans, including Representative Jeff Flake of Arizona, at a meeting on Dec. 2.

Unemployment Issue

Freshman Representative Trey Gowdy, a South Carolina Republican, said he was “wanting to get to yes” on a the tax cut extension. Leaders could secure his vote with language that rewrites the system for unemployment compensation, he said.

“At least with the group of incorrigibles that I hang out with, they’re waiting on the details,” Gowdy said. “They’d actually like to be able to support it. The question is: Are there enough systemic reforms and other things so that we can go back to our districts and say, on balance, this is better than what it could be?”

Senate Majority Whip Richard Durbin, an Illinois Democrat, said it would be difficult to overhaul unemployment insurance before the end of the year.

Negotiation Position

Representative Steve LaTourette, an Ohio Republican, said his party’s leaders are trying to gather enough support within their caucus so they don’t have to rely on Democratic votes to pass a payroll tax cut extension. If Republicans, who number 242 in the House, can find the 218 votes needed to ensure chamber passage, they will be better positioned for negotiations with the Senate on the final version of a bill, LaTourette said.

Representative Steny Hoyer of Maryland, the Democratic whip, said yesterday that Republicans haven’t approached him about delivering votes.

If Boehner can rally his members, Durbin said Republicans shouldn’t pass a bill next week and adjourn for the rest of the year with the expectation that the Senate would agree to the House measure at the last minute.

‘Toss A Bill’

“If anyone has a notion in the House that they can toss a bill at us and leave town, they’re sadly mistaken,” Durbin said.

The 12.4 percent payroll tax that funds Social Security is evenly split between employers and employees. The portion paid by workers was lowered to 4.2 percent in 2011 as the employer portion remained at 6.2 percent. Unless Congress acts, workers in 2012 would again face a payroll tax of 6.2 percent of their wages up to $110,100.

Senate Democrats may face a test of their unity on the issue as soon as today in a procedural vote on legislation proposed by Robert Casey, a Pennsylvania Democrat. His bill would lower the payroll tax paid by workers to 3.1 percent and cover the $185 billion cost in part by imposing a 1.9 percent surtax on income exceeding $1 million.

Democrats Jon Tester of Montana, Joe Manchin of West Virginia and Independent Bernie Sanders of Vermont opposed an earlier Democratic bill with a surtax that was blocked in the Senate last week.

Economists such as Mark Zandi of Moody’s Analytics Inc. have predicted U.S. gross domestic product would shrink half of one percentage point next year if the payroll tax cut isn’t extended or expanded.

Other Deadlines

Lawmakers also may attach to the tax cut extension a provision to avoid cuts to physician reimbursements by Medicare scheduled to take effect Jan. 1. Durbin, though, said it would be difficult to reach a deal on the issue if Republicans continue to oppose a surtax on annual income exceeding $1 million.

“That takes a lot of money off the table,” Durbin said.

Lawmakers can’t cover the cost of the physician cuts through spending cuts alone, Durbin said.

“We’re not returning to those thrilling months of this last year where” Republicans “were dreaming up billions of dollars in spending cuts,” Durbin said. “That is a nonstarter.”

--With assistance from Laura Litvan, Roger Runningen and Kate Andersen Brower in Washington. Editors: Jodi Schneider, Don Frederick

To contact the reporters on this story: Steven Sloan in Washington at ssloan7@bloomberg.net; Kathleen Hunter in Washington at khunter9@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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