House and Senate negotiators appointed to reach a compromise over how to pay for extending the expiring payroll tax cut will hold a key meeting Tuesday morning.
Ongoing discussions between the 20-member conference committee, as well as House and Senate leaders, will make clear whether Democrats and Republicans will reach a quick deal to extend the tax cut for the remainder of the year.
The group will need to make progress this week or next, or the issue will threaten to blow up into a repeat of the bitter December fight that resulted in an agreement to extend the tax cut for just two months.
Both sides believe the outline of a deal is needed before the Feb. 17 start of a planned congressional recess to ensure smooth passage of an extension of the tax cut before it expires Feb. 29.
Republicans emerged from the December fight bruised and divided, and GOP leaders are eager to broker an agreement and avoid a repeat of that experience.
“I want to see the payroll tax holiday extended for the year. This is where the House Republicans were in December. We are not a party that believes we ought to take more money out of the paychecks of the people who are working right now,” House Majority Leader Eric Cantor (R-Va.) said on Fox Business on Monday.
But Democrats and Republicans remain split on how to pay to extend the tax cut. They estimate that it will cost about $150 million to keep the payroll tax rate at 4.2 percent, instead of allowing it to revert to 6.2 percent. That figure would also cover extending unemployment benefits and push off a deep scheduled cut in payments to Medicare providers for the remainder of the year.
Rhetoric so far suggests that neither side has moved since December, when they were unable to agree on how to pay for the measure and were forced to fall back to the short-term deal.
House Republicans insist they laid out a plan to pay for the full year extension — in a bill approved in December that would have extended a pay freeze for federal workers and imposed higher premiums for upper income Medicare recipients.
That measure also included a series of other items that had been designed to draw support from conservative House members wary of the payroll tax cut.
They included reforms to unemployment benefits that would have scaled back the program from 99 weeks of support to 59 weeks of support. Recipients of unemployment benefits would also have been required to pursue a GED and states would have been allowed to require drug testing in the program.
The House bill also required the Environmental Protection Agency to delay regulations governing industrial boiler emissions
Senate Democrats have said for weeks that that the bill is a nonstarter in their chamber. They want to see the measure paid for at least in part by ending tax subsidies to corporations or by imposing higher taxes on the wealthy.
On Monday, Senate Majority Leader Harry M. Reid (D-Nev.) accused Republicans of holding the tax cut “hostage to extort political payback, as they did before.”
“I thought Republicans got the message in December, when they took a beating for opposing this tax cut. I hope they won’t pick this losing fight a second time,” he said.
A senior Senate Democratic aide said talks have hung up on Republican insistence on the provisions of their bill. “We look at the state of play and see absolutely no movement on Republicans’ part,” he said.
A senior House Republican aide responded that Democrats have refused to delineate which pieces of the House bill they find objectionable or to formally outline other ways to pay for the bill.
“The brick wall we’re running into is the fact that they have no position,” the House aide said. “If we don’t have an agreement fairly soon, it’ll be entirely because Senate Democrats failed to do their work.”
That could soon change. Reid has been warning that if talks don’t make progress soon, Senate Democrats will unveil a “Plan B” — their own version of the bill introduced without Republican support.
That bill could pay for the tax cut with a version of a surtax on millionaires that Democrats have repeatedly pushed, against Republican opposition.
Such a bill would almost certainly fail to garner the 60 votes necessary for Senate passage. But it would force Republicans to vote against a measure extending the payroll tax, a vote both sides have come to realize is politically treacherous.
That Democratic fall-back bill, aides agree, would most likely extend the tax cut for the rest of the year. But without an agreement on a 10-month extension, another possibility would be a short-term fix. That would allow Democrats to once again claim to have spared 160 million from a tax increase, while allowing them to continue to bludgeon Republicans with the issue as campaigns heat up.
“We don’t want to let this thing expire, so we’re focused on the long term,” said the Democratic aide. “But Plan C or D might be a short-term plan.”