CQ TODAY ONLINE NEWS
Dec. 13, 2011 – 11:09 p.m.
Compromise Time Starts on Tax Cut
By Sam Goldfarb, CQ Staff
The House vote Tuesday to extend a popular payroll tax cut sets up the likely Senate rejection of the measure this week and then serious negotiations to settle the most contentious end-of-session issue.
Following a weeks-long debate that has already included four unsuccessful Senate votes, the House passed legislation (
The vote was a small political victory for Speaker
The bill passed 234-193, with 14 Republicans voting against the bill and 10 Democrats voting for it.
The House action left the next move to Senate Majority Leader
Reid said Senate rejection of the House-passed bill is a foregone conclusion. “The bill just passed by House Republicans tonight is a pointless, partisan exercise,” he said. “The Senate will not pass it, and the sooner we demonstrate that, the sooner we can begin serious discussions.”
Now that one chamber has approved a payroll tax cut extension, House and Senate leaders are presumably closer to the point at which they might reach an agreement that would prevent a tax increase on approximately 160 million workers and allow Congress to leave town for its winter recess.
Reid will still need to find a way to get at least 60 votes for a payroll tax cut extension in the Senate — something he has been unable to accomplish so far.
“The only way you’re going to get something done over there is get some Democratic votes. The only way I can get anything done over here is get some Republican votes. That seems to scream for compromise, and I believe that’s what we need to do,” Reid said Tuesday.
Boehner also seemed to acknowledge that a bipartisan, bicameral compromise would require concessions by both sides.
“When the Senate acts on their jobs bill, we will begin to take a look at where we can find common ground,” Boehner said after the House passage vote.
White House Threatens a Veto
Compromise Time Starts on Tax Cut
Reid’s comments dismissing the House bill were buttressed by a White House statement issued earlier in the day that flatly asserted that President Obama would veto the legislation if it made it to his desk.
Democrats object to numerous elements of the GOP measure, including a provision that would force Obama to decide within 60 days whether to grant a permit for construction of the Keystone XL oil pipeline from Canada to the Gulf of Mexico. And while Democrats are open to making changes in long-term unemployment benefits, they say the GOP bill goes too far in that respect. They also oppose some of the bill’s provisions that are designed to offset the cost of the tax cut and benefits extensions, most notably a continued pay freeze for federal workers.
Republicans say Senate Democratic leaders are in a difficult position. Despite concerns among liberals about the environmental impact of the Keystone project, Republicans contend that some moderate Democrats are sympathetic to arguments that building the pipeline might create about 20,000 jobs.
“I think the first thing we need to find out is whether there are the votes in the Senate to pass what the House has passed,” Senate Minority Leader
Apart from dealing with payroll taxes and long-term jobless benefits, the House bill would also prevent a 27 percent cut in Medicare payments to doctors and instead increase those payments by 1 percent in both 2012 and 2013.
The bill’s total price tag of just more than $200 billion over 10 years would be covered through various spending cuts and fee increases.
Statements from Reid and McConnell, as well as aides from both parties, suggest that the Senate might vote relatively soon on the House bill and possibly a Democratic alternative that adheres to principles established in their previous, failed efforts to extend the payroll tax cut.
Following a weekly caucus lunch on Tuesday, Reid said Democrats had discussed “a number of options” and that they were still committed to raising taxes on household income above $1 million as a way to finance the payroll tax cut extension.
Not for the first time, Reid also said he would be willing to support an extension of the tax break that is not offset by tax increases or spending cuts.
Reid’s preferred method of reaching a deal with Republicans has been evident for weeks. He has described a year-end legislative package that adds to the deficit as a “softball” for Republicans. But Boehner, for one, has repeatedly dismissed that possibility.
One option for Reid might be to expand upon the GOP package in the hope of adding elements that would appeal to Republicans, despite the effect on the deficit. To that end, he made his support clear Tuesday for the renewal of a mix of tax breaks for individuals and companies that were left out of the Republican package, although they, too, are set to expire at the end of this year.
Absent congressional action, dozens of temporary tax breaks colloquially known as “tax extenders” will sunset Dec. 31. As part of last December’s tax deal (PL 111-312), Congress renewed those tax breaks retroactively for 2010 and extended them through 2011.
Compromise Time Starts on Tax Cut
“We do them at the end of every year,” Reid said. “They’re extremely important. They’re job-creating, and it’s very important we do that. Not only are they job-creating but some people depend on them.”
Tax Extenders in the Mix
Among the breaks in question are several high-profile items, including a tax credit that companies can use to cover some of their research and development expenditures and a deduction for sales taxes paid by people who live in states without an income tax.
Others include various incentives for the production of alternative fuels, the “new markets tax credit” given to entities that invest in low-income communities and a more generous allowance for mass transit benefits provided by companies to their employees.
Millions of middle-class Americans also face the prospect of higher taxes next year because the Alternative Minimum Tax (AMT), typically indexed for inflation on a temporary basis, has not yet been “patched” for 2012.
In recent years, it has become the norm for Congress to authorize these tax breaks for a year or two at a time, allow them to lapse for a short time and then renew them retroactively. Not counting the more expensive AMT, the cost of a one-year extension typically runs about $30 billion to $35 billion over 10 years.
Despite protests that this practice creates uncertainty for taxpayers, lawmakers have generally concluded that retroactive extensions are sufficient because the tax filing season itself is backward-looking. As long as Congress acts next year to keep the state and local sales tax deduction, for example, taxpayers will be able to claim the benefit when they file their 2012 tax returns in early 2013.
The same thinking applies to the about-to-expire AMT patch.
By contrast, lawmakers are under more pressure to extend the expiring payroll tax cut before Jan. 1 because otherwise companies must immediately begin to withdraw more money from workers’ paychecks. Congress last December reduced the employee share of the Social Security payroll tax for 2011 to 4.2 percent from 6.2 percent on wages up to the inflation-adjusted threshold of $106,800.
Ben Weyl and Niels Lesniewski contributed to this story.