Republicans Agree to End Payroll Tax Deadlock

By Laura Litvan and Steven Sloan - Dec 23, 2011 6:28 AM GMT+0700

House Speaker John Boehner agreed to extend a U.S. payroll-tax cut past its Dec. 31 expiration, backing down under pressure from Senate Republicans and President Barack Obama.

The agreement capped a month of wrangling that led to a revolt by House Republicans over a two-month bipartisan deal passed by the Senate Dec. 17 in an 89-10 vote. Amid polling that showed Republicans losing ground politically during the standoff, Obama and Senate Republicans urged Boehner to bring his caucus to agreement.

Boehner said at a news conference in Washington today his members decided to “do the right thing for the American people even if it’s not exactly what we want.”

Democrats spent the past several days warning that average middle-income workers could lose about $40 from each paycheck, or about $1,000 in a year, if the tax cut expired.

The House and the Senate plan to pass the deal by unanimous consent, according to a statement issued by Boehner, which means most lawmakers won’t have to return to Washington.

Obama congratulated members of Congress for ending the partisan stalemate, saying the agreement meets the test of preventing a tax increase for 160 million workers.

“This is the right thing to do to strengthen our families, grow our economy and create new jobs,” the president said in an e-mailed statement. He also thanked Americans who “raised your voice to remind folks in this town what this debate was all about.”

Conference Committee

Senate Majority Leader Harry Reid agreed to appoint negotiators who will work with House lawmakers on a deal to extend the two-percentage-point payroll tax cut through 2012.

Boehner had become increasingly isolated as Obama continued to insist on a two-month stopgap agreement and Senate Republican leader Mitch McConnell said the speaker should accept the Senate’s short-term plan.

Unless Congress acts, the payroll tax for employees will rise to 6.2 percent from the current 4.2 percent in January. The payroll tax funds Social Security. Emergency unemployment benefits are also set to expire on Dec. 31, and doctors who are reimbursed through Medicare would receive lower payments starting in January.

Michael Feroli, JPMorgan Chase & Co.’s New York-based chief U.S. economist, assumes 0.5 percent growth in the first quarter and 1.5 percent in the second if the payroll tax cut and expanded unemployment benefits aren’t continued. If they are extended for the year, he expects growth of 2.5 percent in the first half of the year, he said in a Dec. 16 note to clients.

‘The Right Things’

“We were here fighting for the right things,” Boehner said tonight. “It might not have been politically the smartest thing in the world.”

Representative Kevin Brady, a Texas Republican on the Ways and Means Committee, said in a statement he was disappointed and had been “willing to fight on.”

“In the end House Republicans felt like they were re- enacting the Alamo, with no reinforcements and our friends shooting at us,” Brady said.

Boehner, an Ohio Republican, telephoned Obama earlier today to again press for a one-year extension.

Obama said earlier a “faction of House Republicans” was blocking the measure and that he was doing all he could to resolve the impasse.

“How can we not get that done?” the president said at an event on the White House grounds. “I mean, has this place become so dysfunctional that even when people agree to things, we can’t do it?”

Weakened Hand

McConnell, of Kentucky, weakened Boehner’s hand by calling on the House Republican leader to pass a short-term bill by year’s end so Congress could return to talks over the tax cut, an oil pipeline and other matters in the Senate measure.

“House Republicans sensibly want greater certainty about the duration of these provisions, while Senate Democrats want more time to negotiate the terms,” McConnell said in a statement. “These goals are not mutually exclusive. We can and should do both.”

Boehner told reporters earlier today that the two-month extension was unworkable because most businesses file their taxes quarterly. Later, he said the agreement will include language to protect small businesses from tax reporting requirements in the Senate measure.

Republican Senators Richard Lugar of Indiana, Olympia Snowe of Maine, Scott Brown of Massachusetts and John McCain of Arizona had called on Boehner to accept the Senate’s two-month bipartisan deal.

CNN Poll

A survey suggests that House Republicans’ public image weakened as Obama’s political position improved.

A CNN poll taken Dec. 16-18 found that, by 50 percent to 31 percent, respondents said they had more confidence in Obama than in congressional Republicans to deal with the major issues facing the country. A March survey gave Obama a 44 percent to 39 percent.

Congressional leaders agree the tax cut should be extended through 2012. Democrats and Republicans differ on how to cover the cost to the Treasury and on what other policy changes they sought to accompany the tax cut.

Senate Democrats wanted to pay part of the cost with a surtax on incomes exceeding $1 million, which Republicans opposed, and House Republicans voted earlier to pay for the bill through such measures as freezing the pay of federal civilian employees.

To contact the reporters on this story: Laura Litvan in Washington at llitvan@bloomberg.net; Steven Sloan in Washington at ssloan7@bloomberg.net

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