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Dec. 2, 2011 – 9:41 p.m.

GOP Objections Muddle Payroll Efforts

By Ben Weyl and David Harrison, CQ Staff

Surprisingly solid Republican opposition to preserving this year’s payroll tax cut may complicate efforts by the leaders of both parties to prevent what will be seen as a $1,000 tax increase on most American workers on Jan. 1.

The Social Security payroll tax cut expires this month, as do long-term unemployment benefits and protections for Medicare payments to doctors.

In the midst of a still-dismal economy, many lawmakers want to renew these popular programs. But time is running short, and GOP resistance in both the House and Senate makes the outcome far from certain.

On Dec. 2, Speaker John A. Boehner of Ohio and other party leaders addressed the House Republican Conference on possible ways to finance a one-year extension of the tax cut and ran up against stronger-than-expected objections to the prospect of an extension under any circumstances.

Boehner’s setback came a day after a majority of Senate Republicans voted against a proposal spearheaded by Minority Leader Mitch McConnell, R-Ky. McConnell’s Senate leadership team all voted against the bill to extend the tax cut.

Under last December’s tax deal (PL 111-312), which extended tax cuts enacted under President George W. Bush through 2012, the employee-paid share of the Social Security tax was temporarily reduced to 4.2 percent from 6.2 percent.

President Obama and congressional Democrats want to reduce the employee share of the payroll tax to 3.1 percent for 2012 and cut the employer share to 3.1 percent from 6.2 percent for the first $5 million of a company’s wage costs.

Republican leaders in the House and Senate oppose such an expansion and instead favor a simple extension of the current tax cut. A potentially larger conflict looms between Democrats and Republicans over how to finance whatever extension Congress fashions.

Last week, by a vote of 51-49, the Senate blocked a Democratic proposal (S 1917) that would have paid for the cost of the tax cut with a surtax on individual income over $1 million. Sixty votes were required to advance the bill, and Republicans strongly opposed the offset. Susan Collins of Maine was the only Republican who voted to take up the bill.

The GOP tax cut alternative endorsed by McConnell (S 1931), which would have been financed by a freeze on federal salaries and hiring, among other provisions, was rejected 20-78, with most Republicans and all Democrats opposed.

Democrats are trumpeting what they say is a GOP refusal to support a tax cut for middle-class workers. And Senate Democratic leaders are considering a new payroll tax cut extension effort this week to keep the heat on Republicans. In part, the new effort grows out of Collins’ defection, said a senior Democratic aide.

Appealing to Conservatives

At last week’s caucus meeting, Boehner repeated what has become a familiar scene involving GOP lawmakers who do not want to follow their leaders’ plans when it comes to fiscal matters.

GOP Objections Muddle Payroll Efforts

Republican leaders laid out roughly 10 potential options to offset the cost of the tax cut, jobless benefits and physician payment package, including many proposals developed during deficit reduction talks earlier this year.

Rep. Steven C. LaTourette, R-Ohio, said the possible offsets included a freeze on federal employee wages, including members of Congress, and an increase in premiums for private supplemental insurance plans, known as Medigap policies. LaTourette also said leaders proposed that the two government-run mortgage financing companies, Fannie Mae and Freddie Mac, charge higher fees for loan guarantees.

During the meeting, many rank-and-file lawmakers made clear they were displeased with the leadership proposal.

“Most of the people standing up were troubled with moving ahead with this,” said Arizona Republican Jeff Flake, who opposes extending the payroll tax cut. “I do think they’re misreading it.”

Party leaders said they would work on a proposal this past weekend based on members’ reactions, with the hope of producing a bill by early this week, said Rep. James Lankford, R-Okla. House Majority Leader Eric Cantor, R-Va., said Dec. 2 that the House might take up legislation this week to address expiring provisions.

To appeal to skeptical lawmakers, GOP leaders proposed incorporating pieces of the party’s energy agenda into a single year-end measure that extends the payroll tax cut, renews benefits for long-term unemployed workers and prevents a scheduled Medicare payment cut for physicians, known as the “doc fix.”

The energy items might include a delay in company compliance with a rule that mandates “maximum achievable control technology” for industrial boilers and a removal of barriers to construction on the Keystone XL pipeline.

“They want to try and roll up the payroll tax, extend unemployment benefits, Keystone XL, boiler MACT and doc fix all in one,” said Allen B. West, R-Fla., a freshman backed by tea party groups.

These steps may not be enough to bring along many conservatives who say they resent being asked to extend tax and benefit provisions that were meant to be temporary. Conservative say they are also worried about not funneling owed taxes to the Social Security trust funds and object to the idea that current spending will be offset over 10 years.

“It’s kind of like the Wimpy thing: I will gladly pay you tomorrow for a hamburger today,” West said, referring to the “Popeye” character. West said he would oppose an extension of the tax cut.

Other Republicans tried to downplay the party divisions at last week’s session, which Ways and Means Chairman Dave Camp, R-Mich., called a “lively discussion.”

Freshman Sean P. Duffy, R-Wis., predicted the tax cut would be extended. “I think this conference would be in a very difficult situation allowing this payroll tax holiday to go away and increase taxes on middle-income Americans,” Duffy said. “This will have a real impact on a lot of hard-working American families who are going through difficult times.”

Democrats See an Advantage

GOP Objections Muddle Payroll Efforts

At a Dec. 2 news conference, House Minority Leader Nancy Pelosi, D-Calif., chided Republicans for opposing the tax cut’s extension and said they were being “evasive.”

And although Democrats might prefer not to offset the cost of the extension, Pelosi said, House Democrats would support financing it. To do so, however, she suggested counting savings from the drawdown of troops in Iraq and Afghanistan, an idea that Boehner has publicly ruled out.

While the political posturing goes on, aides to House and Senate leaders say progress is being made behind closed doors toward an agreement that would renew the tax cut and jobless benefits, and address the Medicare payment system.

House Minority Whip Steny H. Hoyer, D-Md., reminded reporters that in light of Republican divisions, Democratic votes have already been necessary to pass spending bills — a signal that whatever offsets are used in a year-end package would have to be agreeable to Democrats.

“We are prepared to cooperate,” Hoyer said.

Added Pelosi, “We cannot go home for Christmas unless we pass this legislation.”

Sam Goldfarb, Alan K. Ota and Frances Symes contributed to this story.

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