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Congress Set for Payroll-Tax Fight as Republicans Balk at Deal

Congress is preparing for a final fight over fiscal policy this year, with the fate of a payroll tax cut for 160 million U.S. workers on the line, after House Republicans balked at a deal worked out in the Senate.

The House of Representatives returns to Washington today to either change a Senate-passed bill extending the tax cut through February or seek a House-Senate meeting to resolve differences between the two chambers. The Senate passed its plan by 89-10 two days ago. The two-percentage-point cut in the payroll tax will expire Dec. 31 if Congress doesn’t agree to extend it.

“Two months is just kicking the can down the road,” House Speaker John Boehner said on NBC’s “Meet the Press” yesterday. “The American people are tired of that. I think -- frankly, I’m tired of it.”

House Republicans were surprised that Senate Republicans led by Kentucky’s Mitch McConnell, who have the procedural ability to block Democratic legislation, didn’t get a better deal, said Representative Jack Kingston, a Georgia Republican.

“People were flabbergasted this was all the stand-up Republicans could give us,” Kingston said in a telephone interview yesterday. “We thought McConnell was hanging out for something stronger.” Republican lawmakers wanted to include changes to the unemployment insurance program, he said.

Partisan Brinkmanship

The showdown over the payroll-tax cut is the latest partisan congressional standoff that lawmakers have taken to the brink this year. The Republican-controlled House, spurred by 87 new members, many elected with Tea Party support, clashed with President Barack Obama and the Democratic-controlled Senate over spending and the federal debt limit. The agreements reached have left both sides unsatisfied.

If Congress can’t agree, workers will see their take-home pay decrease in January, benefits will begin disappearing for the long-term unemployed and doctors who care for Medicare patients will experience a 27 percent cut in reimbursements.

“This is entirely on Speaker Boehner and the House leadership,” White House communications director Dan Pfeiffer said on MSNBC today, calling the Ohio Republican “the one person standing in the way of this tax cut for millions of Americans.”

Senate leaders attempted Dec. 16 to negotiate a yearlong extension of the payroll tax cut and other expiring provisions after the House passed a $202.4 billion bill on Dec. 13. Those talks collapsed because they couldn’t agree on how to pay the cost of the proposal.

Pipeline Decision

Instead, Senate Democratic and Republican leaders agreed on the $33 billion, two-month stopgap extension that included Republican-backed language requiring Obama to make a decision within 60 days on a permit for TransCanada Corp.’s Keystone XL pipeline.

House Republicans’ irritation with the Senate has been growing all year, Kingston said.

“You have serious reformers in the Republican conference” who are frustrated by the inability to advance their agenda in the series of spending compromises reached this year, Kingston said. Lawmakers told leaders on a Dec. 17 conference call that “we will be here over Christmas, if that’s what it takes,” he said.

Democrats seized on the Republican complaints and attempted to blame them for the tax cut’s potential expiration.

“We can work on a one-year extension, but let’s pass this right now,” Pfeiffer said today on MSNBC, referring to the two- month extension. In the House, “virtually every Democrat’s going to support this,” he said, citing House Democratic leader Nancy Pelosi of California.

‘Couple Dozen’ Needed

“You only need a couple dozen Republicans” in the House to add their vote of support, he said. “I found it inconceivable that you can’t get a couple dozen Republicans to vote for a tax cut for the middle class.”

House Republicans’ reaction surprised White House officials, who had been told Boehner had signed off on the compromise and would deliver votes from his members, said an administration official familiar with the negotiations. The official didn’t say specifically who offered the White House that assurance.

The tax cut took effect at the beginning of this year and reduces employees’ share of the Social Security payroll tax to 4.2 percent from 6.2 percent. Obama had sought to shrink the tax to 3.1 percent for 2012 and expand a version of it to employers. The tax will be imposed next year on the first $110,100 of wages.

Negotiating Details

Senate Democrats said they are prepared to negotiate the details of a year-long agreement -- after the short-term extension becomes law.

“Speaker Boehner says he does not want to ‘kick the can down the road,’” Richard Durbin of Illinois, the second-ranking Senate Democrat, said in a statement. “His stubborn refusal to accept this bipartisan approach will endanger a tax cut and kick America’s middle class off the road.”

The differences between the House and Senate bills are significant and go beyond whether the expiring provisions should be extended for two months or for all of 2012.

The House bill included spending cuts that Democrats oppose, such as a pay freeze for federal civilian workers, higher premiums for high-income Medicare recipients and changes to the tax credit formula underlying insurance subsidies in the 2010 health-care law.

The bill would cut the maximum length of unemployment benefits to 79 weeks from 99 weeks and impose a gradual reduction to 59 weeks. The House also voted to let states perform drug tests on people who receive unemployment benefits.

Democratic Resistance

Senator Max Baucus, chairman of the Finance Committee, said Democrats resisted Republicans’ changes to unemployment benefits and health care. As a result, the Montana Democrat told reporters Dec. 17, negotiators couldn’t reach a year-long deal or an 11-month deal that was also under discussion.

The Senate bill that passed would raise $35.7 billion by increasing the guarantee fees that Fannie Mae, Freddie Mac and the Federal Housing Administration charge to lenders for new home mortgages. That proposal was also in the House bill.

Republican House leaders haven’t said what changes they would seek to put back in the bill if they choose to change the Senate bill rather than seek a House-Senate conference committee.

To contact the reporters on this story: Richard Rubin in Washington at rrubin12@bloomberg.net; James Rowley in Washington at jarowley@bloomberg.net

To contact the editor responsible for this story: Mark Silva at msilva34@bloomberg.net

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