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CQ TODAY ONLINE NEWS
Oct. 11, 2011 – 10:44 p.m.

Jobs Bill Likely to Move in Pieces

By Sam Goldfarb, CQ Staff

Democratic leaders are weighing alternatives to President Obama’s jobs bill — after the Senate soundly rejected the latest version — with an eye toward breaking it up into smaller bills.

Senate leaders now appear likely to consider elements of the $447 billion measure (S 1660) separately and to force politically difficult votes for Republicans on such issues as rebuilding schools and granting payroll tax cuts to both workers and small companies.

“Each of these pieces has broad support among the American people,” Sen. Charles E. Schumer, D-N.Y., said during an interview with MSNBC on Tuesday. “Republicans have always supported” payroll tax cuts, which reduce the amount of the levy for Social Security, he said, adding that spending on infrastructure and to prevent teacher layoffs polls well with voters.

Publicly, GOP leaders welcomed the emerging Democratic strategy, arguing that it was the approach that they had favored all along.

House Majority Leader Eric Cantor, R-Va., said Tuesday it was time to put aside “political games” and “find areas of commonality.” He said the House also would seek to move smaller pieces of the proposal.

Cantor’s remarks came hours before the Senate turned down, 50-49, a motion to invoke cloture on the jobs bill; 60 votes were required.

With the unemployment rate hovering just above 9 percent, lawmakers are under pressure to jump-start the economy, which has grown little so far this year and shown some signs it might slip back into recession.

The two parties, however, remain sharply divided by ideology and politics. That reality has dimmed hopes for a bipartisan compromise and ensured that much of what lawmakers do and say in the jobs debate is about messaging for the next election.

Senate Democratic leaders also face internal problems getting support for their proposals. All Democrats except for Ben Nelson of Nebraska and Jon Tester of Montana were willing to vote to cut off debate on the measure — although Majority leader Harry Reid of Nevada also voted no to preserve his right to reconsider the cloture motion later. But several Democrats said they opposed the bill itself in its current form, citing its revenue-raising offset among other concerns.

It is not clear if Democrats plan to offset smaller packages of spending programs or tax cuts with revenue increases similar to the 5.6 percent surtax on household income above $1 million used to finance the larger bill. Doing so would almost certainly stoke GOP opposition. At the same time, fiscal conservatives would probably reject legislation that adds to the deficit.

Offsets aside, most Republicans oppose new government spending of almost any nature. And the two parties are struggling to find agreement over cutting taxes, a policy choice that often unifies Congress.

Republican leaders have refused to endorse an extension of the payroll tax cut included in last December’s tax deal (PL 111-312), which expires at the end of the year. Workers this year have paid a 4.2 percent levy on their wages up to $106,800 to finance Social Security, below the usual 6.2 percent payroll tax. Democrats want to drop the payroll tax rate to 3.1 percent in 2012 for workers.

The same rate would apply to employers on the first $5 million they pay in wages, with additional tax cuts for companies that add workers.

Jobs Bill Likely to Move in Pieces

The bill that was blocked Tuesday featured almost $272 billion in tax cuts and $175 billion in spending, including $35 billion to prevent layoffs of teachers and first-responders, $25 billion to upgrade public schools and $5 billion to modernize community colleges. The legislation included tens of billions of dollars for transportation infrastructure and an extension of benefits for long-term unemployed workers.

No Agreement on Tax Cuts

Although some GOP lawmakers have supported payroll tax cuts in the past, many Republicans have misgivings about extending and expanding the current payroll tax relief, arguing that it would harm the Social Security trust funds and set up a tax increase in 2013 when the cuts would expire.

On a deeper level, Democrats and Republicans are engaged in a longstanding debate about the proper distribution of the federal tax burden across income levels. Democrats have consistently tried to provide tax cuts for lower- and middle-income taxpayers and raise taxes on the wealthiest 1 percent to 2 percent of the population.

Republicans, in turn, have accused Democrats of “class warfare” and pointed to studies that suggest that roughly 50 percent of Americans do not have to pay income tax, although most workers pay Social Security taxes.

Even so, blocking the payroll tax cut might be difficult for Republicans.

House Republican leaders have highlighted Obama’s proposal to expand tax incentives for companies that hire unemployed veterans as a possible starting point for negotiations.

Some members of both parties, meanwhile, have become increasingly interested in a “repatriation tax holiday,” which would temporarily reduce taxes on earnings that companies bring home from their operations in other countries.

Advocates of the policy argue that it would be a relatively low-cost way to boost domestic investment. But it has powerful opponents, including in the White House, and even some Republicans are skeptical.

Hoping to bolster the case against a repatriation tax holiday, Sen. Carl Levin, D-Mich., the chairman of a Senate panel on investigations, released a report Tuesday that added detail to other studies suggesting that an earlier tax holiday did not yield job growth or increase corporate research and development investment.

The report, written by the majority staff of the investigative subcommittee of the Senate Homeland Security and Governmental Affairs Committee, surveyed 20 multinational corporations, including the 15 biggest beneficiaries of the 2004 law (PL 108-347), which allowed companies to pay a one-time rate of 5.25 percent on their repatriated earnings, rather than the usual 35 percent rate.

The report found that the top 15 repatriating companies shed 20,931 jobs from 2004 to 2007 and decreased their pace of research and development, despite provisions in the law meant to avoid those outcomes. Executive pay and stock buybacks increased among the top 15 companies.

Citing IRS data, the report said about half of the $312 billion repatriated as a result of the law belonged to pharmaceutical and technology companies. Many of those same companies stockpiled more of their earnings offshore after taking advantage of the tax holiday, the report said.

Jobs Bill Likely to Move in Pieces

Currently, multinational companies can delay paying income tax on most of their offshore earnings indefinitely, until they bring that money into the United States.

Advocates of a second repatriation tax holiday say more than $1 trillion is being held offshore by U.S. companies that might be reclaimed with the proper tax policy. Bills in the House (HR 1834) by Kevin Brady, R-Texas, and in the Senate by John McCain, R-Ariz., and Kay Hagan, D-N.C., are essentially modeled on the 2004 law, with small changes to make it more likely that companies using the tax break boost employment.

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