House Republicans Left With Few Options to Resolve Fight Over Payroll Tax

By Laura Litvan and James Rowley - Dec 22, 2011 12:00 PM GMT+0700

House Republicans have few options in the U.S. payroll tax cut fight as they face party pressure to accept the Senate’s short-term reduction and Democrats dig in against immediate compromise on a longer extension.

With the 2-percentage-point tax cut due to expire Dec. 31, President Barack Obama told House Speaker John Boehner yesterday the “only option” is to allow a vote on the Senate’s two-month extension to buy time for negotiations on a one-year tax cut. Senate Republicans, including John McCain of Arizona and Richard Lugar of Indiana, are calling on House Republicans to give up their insistence on a one-year extension now.

“They’re going to have to back down,” said Tom Mann, a congressional scholar with the Brookings Institution, a policy center in Washington. “There’s no real possibility of cutting a deal on a one-year extension before the end of the year. It’s foolish to think otherwise.”

A Senate Republican leadership aide said Boehner will have to cave in and allow a vote on the Senate legislation, or let the 2-percentage-point tax cut expire Dec. 31 and hand Democrats an issue they can use in 2012 elections. Democrats have the upper hand politically, said the Republican aide, and Senate Majority Leader Harry Reid, a Nevada Democrat, has little incentive to bring the chamber back from a month-long recess to negotiate.

‘No Other Options’

Adam Jentleson, a Reid spokesman, reiterated that senators won’t be called back to Washington.

“There are no other options,” Jentleson said. “We are not discussing any alternative strategies.”

Take-home pay for 160 million Americans will decrease in January unless Congress approves some kind of extension of this year’s cut in the payroll tax that funds Social Security. A worker earning $50,000 a year would see take-home pay drop by $1,000 over the year. For those paid biweekly, each paycheck would be $38.46 smaller.

Lawmakers in both parties say they want to extend the tax cut through next year, while disagreeing over how to pay for it. Senate Democrats sought a surtax on millionaires, while House Republicans voted for such measures as freezing federal civilian workers’ pay.

Those disagreements exploded into a partisan fight that threatens economic growth and may worsen already low disapproval ratings for both parties.

Holidays Ahead

Mann said that to resolve the dispute this month, Reid would have to bring the Senate back into session after both parties agreed to leave Washington and return for work Jan. 23. There isn’t much time with holidays looming for both sides to find a way to pay for a one-year extension, he said.

A House Republican leadership aide, who wasn’t authorized to speak publicly, said one option floated by Republican aides - though not embraced by party leaders - is to approve a two-month extension binding the Senate to negotiations in January to set up a Feb. 1 vote on a full year’s extension.

Asked about such an idea yesterday, Boehner said House Republicans are “ready to work” and said Senate Democrats should return “to have that conversation.” An aide to Boehner said after the speaker’s call with Obama that the speaker made clear he’s not budging.

Democrats said they were wary of any proposal to set up a conference committee before Congress extends the payroll tax cut for two months.

No Fingerprints

“You know the old saying in Washington, when you want to kill something and not leave your fingerprints on it, appoint a committee,” said Senator Charles Schumer of New York, the third-ranking Democratic leader.

New poll results show that Republicans are losing ground with the public after a year of government shutdown fights and a battle over increasing the U.S. debt limit that risked a default on obligations to bondholders.

A Dec. 16-18 CNN poll found that by a 50 percent to 31 percent margin, adults surveyed said they had more confidence in the president than in congressional Republicans to take on big issues facing the nation. Obama had a smaller 44 percent to 39 percent margin in March.

In an editorial yesterday, the Wall Street Journal called the Republican standoff a “fiasco” and said Boehner may be helping re-elect Obama because the Democratic president gets to look more like a tax-cut proponent than he’s been and they look like obstructionists.

‘Right on the Mark’

“Republicans would do best to cut their losses and find a way to extend the payroll holiday quickly,” the editorial said.

McCain, the Republican presidential candidate in the 2008 elections, circulated the editorial on Twitter, saying, "WSJ is right on the mark here.”

Former House Speaker Newt Gingrich, seeking the Republican presidential nomination, told reporters in Des Moines, Iowa, yesterday that while he isn’t trying to “second-guess the Congress,” presidents typically have the upper hand in these types of policy standoffs with lawmakers.

Michael Franc, vice president for government relations at the Heritage Foundation, said it’s apparent to him that Republicans are losing the political battle in the payroll tax battle. The Heritage Foundation is a Washington group that supports limited government.

“It’s coming across like the Democrats want to cut taxes and Republicans don’t,” Franc said. “It looks like Republicans are the scrooges.”

To contact the reporters on this story: Laura Litvan in Washington at llitvan@bloomberg.net; James Rowley in Washington at jarowley@bloomberg.net

To contact the editor responsible for this story: Mark Silva at msilva34@bloomberg.net