Senate rejects proposals to slash federal payroll taxes

December 8, 2011

The Senate on Thursday rejected dueling partisan proposals to slash federal payroll taxes for 160 million Americans, while House Republicans trotted out a new, more conservative plan that sought to link the tax issue to other GOP priorities.

With an end-of-year deadline looming and lawmakers anxious to wrap up legislative business so they can leave Washington for the Christmas holiday, Congress is headed to a showdown over the payroll issue next week, when it must also approve an expansive spending measure to keep the government humming past Dec. 16.

If Congress does not resolve the issue by the end of the month, the payroll tax rate paid by employees will revert next year to 6.2 percent, instead of the 4.2 percent that has been in place for the past year.

President Obama has urged Congress to push the rate even lower, to 3.1 percent, so workers can retain more of their pay to spend in the weak economy. He said Thursday that he will delay the scheduled Dec. 17 start of his Christmas vacation in Hawaii if needed to get a deal.

Despite the time crunch, the House and Senate concluded work for this week — neither chamber has votes scheduled Friday — with little sign of compromise on the increasingly contentious payroll tax issue. Instead, both parties spent the week digging in.

Eager to paint Republicans as defenders of tax cuts only for the wealthy, Democrats forced a vote Thursday on a $185 billion bill that paid for the tax cut in part with a 1.9 percent surtax on those making more than $1 million a year — even though a similar measure was blocked only a week ago.

It was blocked again Thursday on a 50 to 48 vote, with 60 votes needed to proceed.

Senate Majority Leader Harry M. Reid (D-Nev.) said the vote showed that Republicans are “more interested in passing tax cuts for millionaires than tax cuts for the middle class.”

Meanwhile, GOP leaders in the House unveiled a new proposal that would tie the tax cut to a provision aimed at speeding up work on the Keystone XL oil pipeline — one day after Obama warned that he would reject such a move.

“You know, the president says that the American people can’t wait on jobs. Well, guess what? We agree wholeheartedly with the president,” House Speaker John A. Boehner (R-Ohio) said. “The Keystone pipeline project will create tens of thousands of jobs immediately.”

The 1,700-mile-long pipeline from Canada to the Gulf Coast is backed by many businesses and some union leaders. But the Obama administration delayed a decision on the project last month, awaiting an additional environmental review in the wake of protests over the project.

The House bill would also wrap in other legislation that both parties say Congress must consider before the end of the year, including an extension of unemployment benefits and an adjustment for two years of scheduled cuts in payments paid to Medicare providers.

But the bill — not unveiled publicly — includes other sweeteners for conservatives, according to members who attended a closed-door caucus meeting to discuss it.

Those include a phase-down of the length of time the jobless can receive unemployment benefits, from 99 to 59 weeks, and a provision allowing states to make some benefits contingent on recipients’ passing drug tests. Another item would require tax filers seeking the earned-income tax credit to submit their children’s Social Security numbers.

The additions were aimed at quieting opposition from restive conservatives, many of whom are wary of the payroll tax cut, which they see as a short-term fix that won’t spur economic growth.

There were signs that House Republicans were warming to the proposal Thursday. Members said a pep talk from House leaders about Republican congressional accomplishments in the past year received a positive reception. And Republicans were especially itching to fight out the pipeline issue with the White House.

“The fact that the president doesn’t like it makes me like it even more,” Republican Study Committee Chairman Jim Jordan (Ohio) said of the bill.

Extension of the payroll tax cut and unemployment benefits will require a broad bipartisan compromise that has eluded both parties.

“Next week will be a very important week,” said Sen. Lamar Alexander (R-Tenn.). “This week has been a disappointment.”

Staff writer David Nakamura contributed to this report.

Rosalind Helderman is a political enterprise and investigations reporter for the Washington Post.
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