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Congress Seeks Deal Amid Partisan Split on U.S. Payroll Tax

U.S. Senator Richard
U.S. Senator Richard "Dick" Durbin, a democrat from Illinois. Photographer: Tim Boyle/Bloomberg

Dec. 7 (Bloomberg) -- Even as they exchange partisan proposals, congressional leaders are trying to put together a package of year-end tax and spending provisions that can be enacted, including an extension of the payroll tax cut.

A final deal may not emerge until the week of Dec. 12, because the U.S. House of Representatives won’t vote on its plan until then. Senate leaders are focusing on a Dec. 9 vote on a Democratic proposal that Republicans already have rejected.

“There’s a final package out here,” said Senator Roy Blunt, a Missouri Republican. “There are clearly well over 60 votes for extending this in some way, so you’d be wise to assume it probably gets extended. But it would probably have to have an incredibly attractive set of other issues with it before I’d vote for it.”

Blunt’s comments underscore some of the year-end challenges facing congressional leaders. Many lawmakers agree that the 2 percentage point cut in the payroll tax for employees, which expires Dec. 31, should be extended through 2012. They agree that Congress should continue expanded unemployment benefits and prevent Medicare reimbursements from being cut in January.

They disagree over how to offset the cost to the U.S. Treasury and on what other provisions should be added.

‘Constructive’ Talks

Richard Durbin, the second-ranking Senate Democrat, said yesterday that House and Senate leaders were having a “constructive conversation” to chart a path to passage. He said Republicans, including House Speaker John Boehner, will need to adopt an approach that includes Democrats.

“I hope he accepts the reality that we need bipartisan votes over here to make it happen, and a bipartisan vote in the House may be the eventual outcome,” said Durbin of Illinois.

House Republicans don’t plan to vote on payroll tax-cut legislation until the week of Dec. 12, said Laena Fallon, a spokeswoman for Majority Leader Eric Cantor.

Cantor, a Virginia Republican, said in an interview yesterday there was still “a lot under discussion” and that House leaders would present options to Republicans before the end of the week. Cantor predicted the leaders would be able to persuade their rank-and-file members to support the measure they craft, which he said would include spending cuts.

“Unlike Senate Democrats who are busy trying to find ways to raise taxes, Leader Cantor is committed to ensuring that no one faces a tax increase in these tough economic times,” Fallon said in an e-mail.

Giving Members Time

In a press conference this morning, Boehner said Republicans won’t release a proposal until the caucus has had a chance to weigh in.

“We’re continuing to talk to members,” he told reporters. “It’s important for us to have these deliberations with our colleagues before we introduce a bill.”

Some Republicans are urging Boehner to include a one-time tax holiday that would allow multinational companies to repatriate offshore profits to the U.S. at a lower tax rate, Representative Darrell Issa, a California Republican, said as he left a party meeting this morning.

“If it’s a one-time” holiday, “it’s best in a year-end package,” Issa said.

Support for Repatriation

House Ways and Means Committee Chairman Dave Camp, a Michigan Republican, has said he supports repatriation as part of a comprehensive tax code overhaul. He has introduced draft legislation that would exempt 95 percent of profits earned offshore from U.S. taxation.

Representative Richard Neal, a Massachusetts Democrat who sits on the Ways and Means panel, said today that it would be difficult for lawmakers to advance a tax-code rewrite if repatriation is taken off the table.

“If you give up now and accept what might be a short-term bonanza or holiday, it’s going to be far harder to get tax reform,” he said.

Meanwhile, Senate Democrats are planning a Dec. 9 vote on a plan to cover the revenue with a 1.9 percent surtax on annual income exceeding $1 million, which Republicans have declared unacceptable. The Democratic bill would cut the payroll tax for employees to 3.1 percent for 2012. The current 4.2 percent tax for employees expires Dec. 31, and the rate is scheduled to return to 6.2 percent.

Obama’s Plea

“We need to extend a payroll tax cut that’s set to expire at the end of this month,” President Barack Obama said yesterday in Osawatomie, Kansas. “If we don’t do that, 160 million Americans, including most of the people here, will see their taxes go up by an average of $1,000 starting in January and it would badly weaken our recovery.”

Obama will meet today with Democratic Senate leaders, the White House said.

McConnell said this week’s planned vote on the Democratic proposal was “another show vote designed to fail.” Republicans would announce an alternative “later in the week” and seek a vote on the new plan, he said.

Behind the public recriminations, lawmakers see potential routes to a deal.

“But the real vote will be before we leave here,” McConnell said.

The path ahead will be complicated by demands from both parties.

“Year-end packages are always difficult,” Representative Tom Price, a Georgia Republican, told reporters. “You know that. That isn’t anything new.”

House Democrats say Congress should pay for the bill by using money designated for the wars in Iraq and Afghanistan.

Senate Majority Leader Harry Reid, a Nevada Democrat, said that money should be used to offset the cost of the Medicare provision.

McConnell, a Kentucky Republican, said a final bill should include job-creating proposals, such as a law expediting construction of the Keystone XL pipeline from Canada.

“If there’s any shovel-ready project in America, this is it,” he said.

To contact the reporters on this story: Richard Rubin in Washington at rrubin12@bloomberg.net; Kathleen Hunter in Washington at khunter9@bloomberg.net

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

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