Dems win payroll tax cut as Republicans cave

By Mike Andrew

Congressional Republicans caved to political pressure and passed the two-month payroll tax cut extension favored by Democrats on December 23. Pres. Obama signed the bill into law the same day.

Very similar to the plan passed by a bipartisan 89-10 vote in the Senate on December 17, the measure Obama signed extends the 4.2% payroll tax, continues expanded unemployment benefits, and heads off a reduction in Medicare payments to doctors through February.

Without a deal, the current tax cut would have expired December 31, reducing take-home pay for 160 million workers by an average of $1000 per year.

“This is some good news, just in the nick of time for the holidays,” Obama said. “When Congress returns I urge them to keep working without drama, without delay, to reach an agreement” on extending the tax cut for all of 2012.
It was a political victory for the president and his party, but the success was tempered by the compromises built into the legislation.

The deal calls on Obama to decide within 60 days whether to approve or reject the controversial Keystone XL pipeline from Canada. The President will be under intense pressure both from the oil lobby and from the environmental community.

No one really wanted a mere two month extension. Both parties agreed that if the payroll tax was going to be cut at all, it should have been cut for the entire year of 2012.

The sticking point was the “pay-fors” – how to increase revenues and/or cut other spending to offset the estimated $200 billion cost of a year-long payroll tax cut.

Pres. Obama proposed to cover the costs by imposing a surtax on those earning more than $1 million annually. Republicans wanted to use the payroll tax cut as an excuse to cut social safety net programs.

Rather than tackle this issue, the Senate voted for a two-month extension that could be paid for with relatively minor cuts around the edges of the federal budget.

Although House Speaker John Boehner (R-OH) had previously agreed to pass the Senate compromise bill, he backed out of the deal at the last minute under pressure from Tea Party supporters in his own caucus who hoped for a showdown on budget issues.

Republicans once again found themselves in the position of defending low taxes for the rich, high taxes for working people, and cuts to programs benefiting seniors and low income workers.

Even the Wall Street Journal warned them that their position was politically untenable.

“[W]e wonder if they might end up re-electing the President before the 2012 campaign even begins in earnest,” the WSJ wrote in an editorial.

In the end, the political pressure forced House Republicans to reach a compromise.

Tea Party Republicans weren’t the only ones opposing the payroll tax cut, however.

Progressive Sen. Bernie Sanders (I-VT) was skeptical of using money intended to fund Social Security for tax relief, no matter how welcome it might be.

"My concern is diverting hundreds of billions of dollars from the Social Security trust fund into that immediate tax relief," Sanders said. "So I would love to see tax relief, but done in a different way."

Sanders had previously announced he would introduce a bill to “scrap the cap” – in other words, to apply the same payroll tax already paid by more than nine out of 10 Americans to those with incomes over $250,000 a year.

This, he said, would guarantee that Social Security would remain solvent for the foreseeable future and that the tax used to pay for it would be fair.