Some in GOP Reject Payroll-Tax Cut Extension

U.S. House Speaker John Boehner will seek in the next week to persuade fellow Republicans to set aside their concerns and support a one-year extension of a payroll tax cut that some members of the party are resisting.

The Ohio Republican presented a plan yesterday to members of his caucus that would extend the payroll tax cut for employees into 2012 and offset the forgone revenue. The proposal hasn’t been released publicly, and some of the Republicans expressed skepticism about it.

Boehner is facing a political dilemma of tending to his party’s concerns while trying to rebuff Democratic criticism that Republicans are willing to allow taxes for the middle class to increase. Representative Jeff Flake, an Arizona Republican, said many Republican lawmakers during the caucus meeting cautioned Boehner against pushing a proposal to the House floor.

“Most of the people standing up were troubled with moving ahead on this,” Flake told reporters.

Unless Congress acts, the tax cut -- which lowered the employee portion of the Social Security payroll tax from 6.2 percent to 4.2 percent for 2011 -- will expire Dec. 31. The 2011 tax break resulted in $111.7 billion in forgone revenue to the Treasury over 10 years, according to the congressional Joint Committee on Taxation.

The government transferred money from the general fund to cover the reduced funding for Social Security.

House Republicans

The House hasn’t scheduled a vote on an extension. If 24 or more Republicans don’t back it, Boehner will need the support of some Democrats for passage.

The debate marks an unexpected reversal for congressional Democrats, who remain bitter over the deal President Barack Obama struck late last year with Republicans to extend the Bush- era tax cuts through 2012. Boehner and other Republican leaders cautioned that allowing tax cuts for income, capital gains and dividends to expire would harm the economy and small business owners. That’s the argument Democrats now are using to pressure Republicans to extend the payroll tax cut.

Representative Nancy Pelosi of California, the House Democratic leader, said lawmakers should “stop toying with the American people and their economic security.”

She told reporters yesterday that Republicans are “feeling the heat” from Democrats over tax policy.

The ‘High Ground’

Representative Steve Israel of New York, who leads the Democratic Congressional Campaign Committee, said his party has the “high policy ground” on taxes as a result of the payroll debate.

“We’ve got them trying to defend the indefensible,” Israel said.

Obama told reporters yesterday that a failure to extend the payroll tax cut “would be a significant blow to our economy.”

“I expect that it’s going to get done before Congress leaves,” Obama said. “Otherwise, Congress may not leave at all and we can all spend Christmas here together.”

At a press conference, Boehner said he wasn’t worried about Republicans losing control of their message on tax issues.

“The fact is that Republicans are doing everything we can to allow American families and small businesses to keep more of what they earn,” he said. “The other side can go out, come out with all the rhetoric they want to come up with, but the facts are facts.”

Surtax Fails

The U.S. Senate on Dec. 1 rejected a Democratic proposal that would have imposed a 3.25 percent surtax on annual income exceeding $1 million to pay for extending the payroll tax cut and expanding it to employers.

The Senate also thwarted a Republican measure that would have extended the payroll tax cut for employees for one year and offset the cost by reducing the federal workforce by 10 percent, freezing federal pay through 2015 and requiring high earners to pay more for Medicare premiums.

The Republican proposal was rejected by 26 members of the party. Some Republicans, such as Senator Orrin Hatch of Utah, said they are troubled by the tax cut and that it hasn’t provided economic growth as promised. Representative Tim Walberg, a Michigan Republican, said the tax cut is a short-term solution that stops lawmakers from tackling the more fundamental fiscal problems the U.S. faces.

‘Flat Broke’

“Extending and taking away the pain and taking away the reality that we are flat broke and printing our money right now has really hurt this country,” Walberg said. “We understand that we have a problem that we just can’t kick down the road.”

Like the Republican plan that was blocked in the Senate, the proposal being developed in the House includes a federal pay freeze, according to Representative Peter King, a New York Republican.

Representative Steve LaTourette, an Ohio Republican, said the House measure would change the structure for unemployment insurance and would avoid cuts to physician reimbursements by Medicare for two years. It would include language addressing the Keystone pipeline and an Environmental Protection Agency proposal to limit emissions for industrial boilers, LaTourette said. These provisions could attract more Republican support.

“There’s obviously some angst among some members of our conference,” LaTourette said. “It’s the speaker’s job to work that out.”

Pelosi said lawmakers should use the money that would have funded the wars in Iraq and Afghanistan to cover the extension’s cost.

“It’s the perfect place to go,” she said.

House Budget Committee Chairman Paul Ryan, a Wisconsin Republican who said in June that the payroll tax cut is a “sugar high,” said yesterday that he thinks a deal will be worked out to extend the break.

“We’ll figure it out,” he said. “It’s all good.”

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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