Alex Wong/GETTY IMAGES - Senate Minority Leader Sen. Mitch McConnell (R-KY) is surrounded by members of the press as he leaves his office for the day December 16, 2011 on Capitol Hill.
Democrats are likewise itching for another round of debate on the payroll tax holiday, which polls show is broadly popular.
On Saturday, Obama signaled he will take up that argument quickly after House passage, saying it would be “inexcusable” for Congress not to keep the tax holiday in place for all of 2012.
President Obama said he was "very pleased" that the Senate voted to extend the payroll tax cut, averting a tax increase for millions of workers on January 1, 2012. (Dec. 17)
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“It should be a formality, and, hopefully, it’s done with as little drama as possible when they get back in January,” he said.
Democrats would use the fight to echo their central election-year theme — that Republicans protect the wealthy at the expense of the middle class. In the next round, they would renew demands that the middle-class tax holiday be funded with a surtax on those who make more than $1 million a year.
“It’s a fight we welcome,” Sen. Charles E. Schumer (D-N.Y.) said.
GOP leaders have supported extending the payroll tax holiday. But many rank-and-file Republicans have had to be coaxed into it, fretting about the impact on Social Security and disputing Obama’s contention that letting workers keep more of their paychecks for a few months would spur the economy. The federal retirement program is funded through payroll taxes paid by workers and their employers.
The unusual Saturday vote in the Senate capped a wild week on Capitol Hill. Democrats seeking a deal on the tax-cut issue held up a separate agreement that had been reached on a $1 trillion government funding measure.
With a short-term funding measure expiring at midnight Friday, the stalemate left many federal agencies facing the possibility of a shutdown, the fourth such threat this year. After the spending bill was tweaked late in the week to satisfy White House concerns, the drama over the measure was also settled Saturday, with the Senate adopting a bill that details spending for three-fourths of government agencies through Sept. 30.
But the week’s standoff made for an odd reversal of Washington’s ideological clashes: Many Republicans agreed to a tax cut with reluctance, and Democrats briefly stood in the way of appropriating funds needed to provide basic government services.
On the payroll tax package, the Senate arrived at a two-month deal after talks fell apart over how to pay to keep the tax rate at 4.2 percent instead of its standard 6.2 percent for a full year.
The $33 billion two-month package includes the $20 billion tax cut, an $8.4 billion extension in jobless benefits and a brief postponement of a scheduled cut in Medicare reimbursement rates paid to doctors, at a cost of $4 billion.
In the end, the Senate agreed to pay for the measure by raising fees charged to homeowners who buy a new house with a loan guaranteed by Fannie Mae or Freddie Mac.
A homeowner buying or refinancing a house that costs $220,000 will, on average, pay less than $15 in additional charges a month, a change that will raise $36 billion over 10 years, congressional aides said.
The higher fees have been embraced by both parties as a way to allow private insurers to better compete with Fannie Mae and Freddie Mac, which insure nine out of every 10 home loans made in the United States and are widely thought to undervalue loan risk.
The two-month deal represents only the most recent in what has amounted to a Russian doll’s worth of postponements of tough choices by Congress.
This deal was necessary because the deficit-reduction supercommittee failed last month to come to an agreement that would roll a solution to the payroll tax issue into a broad deficit-reduction strategy, as leaders had hoped.
The supercommittee was created because Congress failed to arrive at a grand bargain to greatly cut the debt and reform taxes and entitlements as part of the August deal to raise the nation’s legal borrowing limit. In that deal, Congress asked the 12-member panel to give it a try.
But the two-month deal would let a battered, divided Congress do the one thing that could improve its public reputation: Take a break from its nasty fights and leave Washington for the holidays.
Staff writer David Nakamura contributed to this report.
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