Republicans’ Payroll Tax Cut Vote Aims to Pressure Democrats

U.S. House Republican leaders offered to vote this week to extend a payroll-tax cut through 2012 in an attempt to shift blame to Democrats if they balk and Americans’ take-home pay shrinks next month.

Republican leaders yesterday dropped their demand for spending cuts to offset the $94 billion cost of continuing the payroll tax cut through the rest of 2012. They proposed passing the tax cut while continuing to negotiate on long-term federal unemployment benefits and a measure to prevent a 27 percent cut in Medicare reimbursements to doctors. All three provisions are set to expire Feb. 29.

The Republicans’ move focused attention on unresolved negotiations over the expanded jobless benefits. The chief Democratic negotiator, Senate Finance Committee Chairman Max Baucus of Montana, said today his party would fight to make sure that neither jobless benefits nor the payroll tax cut expires.

“We can’t let that happen to working families in our economy,” Baucus said at a committee hearing this morning.

President Barack Obama held an event on the White House grounds today seeking to pressure Congress to act quickly on the payroll tax cut and additional unemployment insurance. He said that with the recovery still fragile, lawmakers “shouldn’t hike taxes on working Americans.”

Obama said while there are “hopeful signs” that lawmakers are moving closer to an agreement, “you can’t take anything for granted in Washington.”

Initial Rejection

In late December, House Speaker John Boehner of Ohio under political pressure accepted a two-month extension of those measures and the Medicare provision to allow time for talks on how to continue them through 2012. Boehner’s Republican rank and file at first had rejected a similar plan.

Democratic Representative Chris Van Hollen objected that separating the payroll tax cut from the other two proposals “would leave millions of Americans who are out of work through no fault of their own hanging” and would leave Medicare patients “in the lurch.”

“That’s why these three things were dealt with as one package the first time around, and they should stay together in the next round,” Van Hollen of Maryland told reporters.

Republican strategist Ron Bonjean, who was the chief spokesman for former Speaker Dennis Hastert of Illinois, said yesterday it would be better for the party to pass the payroll tax cut, and “get this behind them and fight another day than it is to continue this debate, which Republicans lost in December.”

Senate Democrats

Bonjean said passage of the House measure would pressure the Democratic-controlled Senate to approve the tax-cut extension or face being blamed by voters for allowing the payroll tax to increase by 2 percentage points in March.

“If it stalls in the Senate, that’s where the blame will lie if taxes will go up,” Bonjean said.

House Republican leaders, who earlier had insisted on financing the payroll-tax cut with spending reductions, said in a joint statement yesterday that simply extending the measure “is not our first choice.”

“Our goal is to reach a responsible agreement” on the package, said the joint statement by Boehner, Majority Leader Eric Cantor of Virginia and Kevin McCarthy of California. “But in the face of the Democrats’ stonewalling and obstructionism, we are prepared to act to protect small businesses and our economy from the consequences of Washington Democrats’ political games.”

Streamlined Vote

To raise the stakes for Democrats even higher, Republican leaders signaled in a notice to lawmakers that the House may consider the payroll-tax extension under streamlined procedures requiring a two-thirds vote for passage. Democrats would risk being blamed for killing the extension if they withhold support.

Support of all 242 Republicans isn’t guaranteed. The House has 87 new Republicans elected in 2010, many with Tea Party support. The party’s leaders must be sure of their vote count before putting the measure on the floor because significant rank-and-file opposition “would step all over their narrative,” said Brian Gardner, senior vice president for Washington research at KBW Inc.

Republican leaders might have trouble gaining support from Tea-Party backed lawmakers. Senator Rand Paul, a Kentucky Republican who has criticized the payroll tax break because it would reduce funding for Social Security, said not paying for it makes the provision an “even worse idea.”

‘Feel Trapped’

“I just don’t think it’s a good idea, particularly not to pay for it,” Paul told reporters yesterday. The House Republican leaders “feel trapped,” he said. “The president’s beating them up saying they don’t want to do anything and they’re just obstructing things.”

Republicans, who have expressed a resolve to extend the payroll tax through the rest of the year, may be more unified this time. The leadership statement indicates “that all or most of the conference is going to go for this,’ Bonjean said.

Senate Majority Leader Harry Reid, a Nevada Democrat, said in an interview he was reviewing the Republican proposal and that it moved negotiations closer to an agreement.

Senate Republican Leader Mitch McConnell, asked by reporters whether he supported a payroll tax extension without offsetting spending cuts, said, “I’m in favor of extending the payroll tax holiday.”

“How to do that is a matter under discussion,” said McConnell of Kentucky.

$94 Billion

Obama’s 2013 budget released yesterday estimated it would cost $94 billion to extend the payroll tax through the rest of 2012.

Republicans also have sought new restrictions on who can receive jobless benefits, including allowing states to drug-test beneficiaries and require them to get a high school equivalency degree if they don’t have a diploma.

Extending the unemployment benefits through the end of the year would cost from $30 billion to more than $40 billion, depending on the duration of jobless pay in states hardest hit by the economic downturn. Unemployed people in those states can receive benefits for as many as 99 weeks, while Republicans have sought to cut the maximum to 59 weeks.

Some Democratic negotiators, such as Senator Ben Cardin of Maryland, have said unemployment benefits are emergency provisions and shouldn’t have to be financed elsewhere in the budget. Others, including Van Hollen, have said they are open to paying for an extension by raising taxes for oil-and-gas companies or changing the tax treatment of carried-interest compensation paid to private equity managers.

Senator John Barrasso, a Wyoming Republican and a member of the Senate-House negotiating committee on the payroll tax cut, accused Reid of “trying to pull the rug out of any successful completion of this effort.”

Republican negotiators “are continuing to look for ways to pay for all parts” of the plan, including the payroll tax cut extension, Barrasso said.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE