Congress Extends Payroll Tax Cut to 2013

By Steven Sloan, Richard Rubin and Kathleen Hunter - Feb 18, 2012 1:51 AM GMT+0700

A coalition of Democrats and Republicans in the U.S. Congress united to extend a payroll tax cut through the rest of the year, less than two weeks before it was scheduled to expire.

The Senate today cleared the $145 billion measure 60-36, minutes after the House passed it 293-132. White House spokesman Jay Carney said President Barack Obama would sign the package “right away.”

In addition to the two percentage-point tax cut for workers, the agreement will continue expanded unemployment benefits and avoid a cut in doctors’ Medicare reimbursements through the end of this year. The provisions would have expired at the end of the month if Congress didn’t act.

Senator Charles Schumer of New York, the Senate’s third- ranking Democrat, called today’s votes a “miracle” after a year in which a divided Congress was unable to agree on many questions of fiscal policy until the last minute.

“It is very hard these days to pass legislation through the Senate and through the House,” Schumer told reporters. “But maybe we’re past the old days of ‘If I don’t get it all my way, I’m going to block it from happening.’ That’s what hopefully this is a sign of.”

Health-Care Cuts

In negotiations led by Representative Dave Camp, a Michigan Republican, and Senator Max Baucus, a Montana Democrat, both parties made political sacrifices. Democrats agreed to health- care cuts and a reduction in emergency unemployment benefits while Republicans abandoned their insistence on covering the cost of the full measure.

“Both sides gave a little to get something done,” Senate Majority Leader Harry Reid said today.

The arrangement meant that House Speaker John Boehner, an Ohio Republican, had to rely on votes from Democrats to cancel out the no votes cast by some Republicans backed by the Tea Party. Many Democrats said they reluctantly supported the deal.

“We have to vote for this bill because it does a lot of very important things,” Representative Frank Pallone, a New Jersey Democrat, said on the floor before the vote. “But I also have to express my reservations.”

Democratic opposition mostly centered on concern about cutting maximum unemployment benefits, imposing new requirements on federal worker pensions and health-care cuts.

Federal Workers

House Minority Whip Steny Hoyer, a Maryland Democrat whose district is home to many federal workers, spoke against the pension provision on the House floor, saying Congress should stop “dissing” federal workers.

“Nobody is targeted in this bill other than federal employees,” Hoyer said. “You can tell I’m angry about that, because that’s not fair and that’s not how you ought to treat our employees, America’s employees.”

In the House, 146 Republicans and 147 Democrats supported the measure while 91 Republicans and 41 Democrats voted against it. Fourteen Senate Republicans joined 45 Democrats and one independent in voting for the plan, while 30 Republicans, five Democrats and one independent opposed it.

The extended reduction in the payroll tax funding Social Security means employees will continue to pay 4.2 percent of their wages, down from the typical 6.2 percent, for all wages up to $110,100.

Social Security

The tax break would cost $93.2 billion, which would be borrowed and then transferred from the general fund to Social Security. The cost of the measure’s other provisions would be covered by spending cuts and other changes, and the bill would increase the deficit by $89 billion over the next decade, according to the Congressional Budget Office.

The $30 billion unemployment extension would gradually reduce the number of weeks that recipients can receive benefits, down from the current 99 weeks, according to separate summaries provided by Democrats and Republicans on the House Ways and Means Committee. By the end of the year, most states would offer maximum benefits for 63 weeks while people in high-unemployment states would be eligible for 73 weeks of benefits.

According to summaries of the legislation, the bill would make other changes to unemployment policy, such as allowing states to require drug tests of some benefit recipients.

The bill includes revenue-raising provisions and spending cuts to cover the cost of the unemployment and Medicare extensions.

Wireless Spectrum

These include the $15 billion auction of a portion of the wireless spectrum and a $15 billion requirement that new civilian federal employees and members of Congress pay more for their pensions. The pension change would require employees hired starting in 2013 to contribute an additional 2.3 percentage points of their wages toward their pensions, according to the Finance Committee.

Hospitals will bear much of the cost of the bill. They will lose about $11 billion in government payments for bad debt, incurred when Medicare patients don’t make co-payments or pay deductibles, and for charity care.

Clinical laboratories such as Laboratory Corporation of America Holdings will take a 2 percent Medicare payment cut in 2013, according to congressional documents.

The agreement also would trim $5 billion over a decade from a $2 billion-a-year fund created by the 2010 health-care law to support community preventive and public health-care programs.

The measure is H.R. 3630.

To contact the reporters on this story: Steven Sloan in Washington at ssloan7@bloomberg.net; Richard Rubin in Washington at rrubin12@bloomberg.net; Kathleen Hunter in Washington at khunter9@bloomberg.net

To contact the editor responsible for this story: Jodi Schneider at jschneider50@bloomberg.net