Bloomberg News

Senators Lament ‘Maintenance Congress’ Passing Short Tax Cut

December 18, 2011

Dec. 18 (Bloomberg) -- The U.S. Senate voted to extend an expiring payroll tax cut for two months, with senators concluding their work for the year by putting the same tax cut on their agenda for early in 2012.

The 89-10 vote yesterday sends the $33 billion measure to the U.S. House of Representatives, where lawmakers could vote as soon as tomorrow to send it to President Barack Obama. The legislation also extends emergency unemployment benefits, prevents a cut in doctors’ reimbursements under Medicare and calls on Obama to decide on approving a Canadian oil pipeline within 60 days.

The agreement will give a temporary reprieve to workers concerned about seeing their take-home pay decline. Even as most senators voted for the compromise reached by Republican and Democratic leaders Dec. 16, many said as they left the Capitol yesterday that they weren’t satisfied with their work.

“We’re just becoming more of an extenders Congress, a short-term Congress, a maintenance Congress, and that makes our work here more difficult,” Senator Max Baucus, a Montana Democrat who heads the Finance Committee, told reporters. “More importantly, it causes much more uncertainty among people in the country. It’s really a disservice to the country.”

Obama urged the House to pass the bill and said he would sign it.

“I’m very pleased,” he said yesterday at the White House. Obama said it was his “expectation” that Congress would extend the payroll tax cut for the rest of 2012.

“It would be inexcusable for Congress not to further extend this middle-class tax cut for the remainder of the year,” Obama said. “It should be a formality, and hopefully is done with as little drama as possible.”

‘Classic Way’

Senator John McCain, an Arizona Republican who was Obama’s opponent in 2008, said the year-end vote was the “classic way” Congress operates.

“Go to the edge of the cliff again and pull back,” he told reporters, grimacing. “It will give you things to write about.”

When they return to Washington in January, lawmakers will reprise the themes and issues they have been debating for months.

Democrats plan to again make the case for raising taxes for high earners as a way to cover the cost of the expiring payroll tax cut. Republicans blocked several attempts by Democrats to offset the payroll tax cut through a surtax on income exceeding $1 million. The payroll tax funds Social Security.

“It’s a fight we welcome,” Senator Charles Schumer, a New York Democrat, told reporters yesterday. “We’d like to fight on that issue every day.”

Pipeline Issue

Senator Robert Casey, a Pennsylvania Democrat, said he didn’t think Democrats have lost any leverage over Republicans by agreeing to a two-month extension and to the pipeline language.

“You want to talk about leverage?” he said. “There are 160 million American workers who are depending upon people in both parties to make sure the payroll tax cut is in place for the entire year, and if you’re not in favor of that, I think you have a lot of explaining to do.”

Republicans, emboldened by their success in adding the Canadian Keystone pipeline language to the bill, said they will consider conditions for another extension. One possibility, said Republican Mark Kirk of Illinois, would be language limiting industrial boiler regulation that was in the House-passed version of the bill.

Republicans, including Senate Minority Leader Mitch McConnell, of Kentucky, claimed credit for the inclusion of the pipeline language, saying the project would spur immediate job creation if Obama approved it.

“Here’s the single-largest shovel-ready project in America,” McConnell said today. “It is literally ready to go, pending the approval of the president.”

‘Ammunition’

Senate Majority Leader Harry Reid, a Nevada Democrat, told reporters Dec. 16 that the deal was “the best we could get.” He said Democrats will be better positioned to push for a long- term extension in February because lawmakers won’t also be negotiating a spending measure to keep the government funded.

“We have a lot of ammunition,” he said. “We will not have the threat of the government shutting down in two months.”

Lawmakers will have difficulty agreeing on ways to pay for further extensions of the payroll tax cut and other expiring provisions to avoid increasing the budget deficit. The House passed year-long extensions Dec. 13 that included a pay freeze on federal civilian employees and Medicare premium increases on higher earners that Democrats oppose.

“It’s just devilishly hard to do things that, to me, are so clear need to be done,” said Senator Kent Conrad, a North Dakota Democrat who chairs the Budget Committee. “That’s really what it gets down to, is a dispute on pay-fors. We’ve got to do better.”

The payroll tax cut extension limits the benefit of the 2 percentage-point cut to the first $18,350 of wages or self- employment income earned in January and February. That’s one- sixth of the $110,100 limit of annual earnings subject to the Social Security cap.

That restriction means that high earners may not be able to receive the full benefit of the tax break on their January and February wages.

Covering the Cost

The cost of the bill is covered by raising the guarantee fees that government-backed mortgage companies Fannie Mae and Freddie Mac charge to lenders for new home loans.

The mortgage fee provision raises by 10 basis points the fees that Fannie Mae and Freddie Mac charge lenders. It makes a similar change to loans guaranteed by the Federal Housing Administration. The Fannie and Freddie fees are permanent; the FHA change expires in 2021.

Senator Joe Manchin, a West Virginia Democrat who opposed the bill, criticized the rush to exit for the year.

“It makes no sense for two months to come back and fight the same fight we’ve been fighting for how long now,” he said. “I feel very strongly that we need to stay here and fix things.”

The bill is HR 3630.

--With assistance from Kathleen Hunter, Margaret Talev and Matt Bok in Washington. Editors: Jodi Schneider, Ann Hughey.

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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