House Republican leaders said Monday that they will support extending the federal payroll tax holiday through the end of the year without demanding spending cuts to pay for it, a concession aimed at averting another politically damaging showdown in Washington.
The House leadership could offer a pared-down measure to extend the tax cuts later this week. But the top three GOP leaders backed off previous demands that the tax break’s extension be accompanied by spending reductions to shore up the finances of the Social Security program, which is funded through withholding taxes.
Instead, House Speaker John A. Boehner (R-Ohio) and his top lieutenants said they do not want to be held responsible for the tax increase on 160 million workers that would happen if the tax holiday were not extended.
The two sides have been negotiating for weeks but have been unable to strike a deal. Republicans want to continue negotiations over financing the rest of the original legislative package, including an extension of unemployment benefits and a key tweak to maintain Medicare reimbursement rates for doctors, while ensuring that taxes will not rise on workers.
“Because the president and Senate Democratic leaders have not allowed their conferees to support a responsible bipartisan agreement, today House Republicans will introduce a backup plan that would simply extend the payroll tax holiday for the remainder of the year while the conference negotiations continue,” Boehner, House Majority Leader Eric Cantor (R-Va.) and House Majority Whip Kevin McCarthy (R-Calif.) said in a joint statement.
The statement came as negotiations between members of a House-Senate conference committee, asked to iron out differences between the two versions of the legislation, remained stalled over how to finance the roughly $150 billion package.
Democratic leaders said they would prefer moving all three measures in a single piece of legislation but did not rule out supporting the House Republican compromise proposal to act on the tax holiday separately. That portion of the deal is estimated to cost $100 billion over the next 10 months.
“The Republican plan to decouple the payroll tax jeopardizes both the ability of seniors to see their Medicare doctors and benefits for millions of Americans who lost their jobs. There is no reason all three of these priorities cannot proceed at the same time as both the House and Senate agreed,” House Minority Leader Nancy Pelosi (D-Calif.) said in a statement.
But there is a sense that the uncertainty that once surrounded the fate of the payroll tax holiday has lifted: All sides agree that it will be extended and there will be no repeat of a pre-Christmas showdown over the tax benefit that created bitter political divisions within their party’s ranks.
As part of a December 2010 tax compromise, which extended the 2001 and 2003 tax cuts through the end of this year, President Obama won inclusion of the payroll tax cut that dropped individuals’ withholding rate to 4.2 percent from 6.2 percent, giving the average worker an extra $80 a month.
Republicans have questioned the efficacy of the plan, while others have lamented its effect on Social Security’s future. But Obama trumpeted the idea as a way to put cash quickly into workers’ pockets, helping to fuel the improving economy, and in his September proposal he offered to extend the holiday through this year and expand it for workers and employers.
While most of his nearly $450 billion in jobs initiatives fell by the wayside, the payroll tax holiday has survived. When a full-year extension of the existing tax holiday could not be agreed upon in December, the Senate passed, by a wide bipartisan vote, a two-month extension, but House Republicans rebelled. They suggested it was bad economic policy to temporarily adjust payroll taxes, and, more important, many of the 89 Republican freshman lawmakers said it was just the sort of half-a-loaf deal that they were swept into office to correct.
Amid the worst political crisis of Boehner’s tenure — GOP presidential candidates, leading Senate Republicans and former national party chairmen called for passing the interim bill — the speaker wobbled for a week over what to do. Finally, just before Christmas, he pulled the plug on his rebels and passed the bill while they were out of town, calling it the “right fight at the wrong time.”
But with the payroll pay-fors off the table, the two sides are now haggling over ways to pay for the remaining $50 billion needed to cover the extension of unemployment benefits and the Medicare reimbursements for doctors.