Lawmakers split on payroll tax

Although the Republican-led House approved a $1 trillion spending bill Friday that averted a government shutdown, wrangling continues on how to fund the payroll tax cut. Time is running out before the tax rate automatically rises in two weeks — and lightens American workers’ wallets. Should party negotiations break down, the House also passed two stop-gap spending bills: one that would fund the government for a day and one for a week. That will allow the two sides to keep discussing the payroll tax extension.

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Your paycheck

The measure would maintain the payroll tax rate at 4.2 percent for the year instead of allowing it to revert to 6.2 percent on Jan. 1. That’s worth about $1,000 to families earning $50,000 a year.

The payroll tax bill also renews benefits for the long-term unemployed, as well as preventing a cut in Medicare benefits for seniors.

An Associated Press-GfK poll released Thursday found that 58 percent of Americans favor the payroll tax extension and want Congress to pass it.

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Stop-gap spending vs. long-term spending

If voters want Congress to pass the tax extension, what’s the problem? It’s gotten tangled up in a number of seemingly unrelated issues that Republicans and Democrats haven’t been able to agree on. Here’s a rundown:

Paying for it

Each party has its own agenda for how it wants to pay for what amounts to a tax cut for 160 million workers.

While the GOP-led House passed a bill extending the tax cut on Wednesday, the legislation relied on a pay freeze and increased pension contributions for civilian federal employees, and higher Medicare premiums for seniors. It didn’t have the votes to pass muster with the Democrats who run the Senate.

The House bill would also have raised a fee that is charged to banks with mortgages guaranteed by Fannie Mae and Freddie Mac, and would have canceled more than $40 billion in funding for the year-old health care overhaul.

On Friday, Senate leaders reached an agreement to pass a two-month extension on the payroll tax cut, keeping the 4.2 percent rate through February. The agreement also requires the administration to decide within 60 days if the controversial Keystone pipeline is the nation’s interest. Any deal would still require passage by the House.

Jobless benefits

Along with extending the lower payroll tax, President Obama and Senate Democrats are pushing to extend jobless benefits. That has set up a showdown putting the unemployment benefits of nearly 1 million workers at risk. Americans who have been out of work for at least six months could lose their benefits in January.

The Republican-backed payroll tax cut proposal seeks to extend unemployment coverage but would gradually reduce the ceiling on federal and state benefits from 99 weeks to 59 weeks by mid-2012.

Republicans and some economists have cited falling unemployment rates as support for reducing payments. They also cite studies indicating that extending benefits keeps people from seeking work.

Democrats want to keep the current unemployment benefits. Rep. Earl Blumenauer, D-Ore., said it was cruel to reduce the limit because, in many parts of the country “the jobs aren’t there.”

Democrats argue that reducing jobless benefits would hurt states with the highest unemployment rates. According to a Democratic analysis, the Republican plan would reduce benefits by 40 weeks in Georgia and 20 other states plus the District of Columbia.

The Republican plan also would allow states to require drug testing of people who apply for jobless benefits. And most people receiving benefits would have to search for work and pursue a GED if they have not earned a high school diploma.

The pipeline

Republicans want to attach to any tax cut extension a plan for a 1,700 mile Keystone XL pipeline project from Canada to the Gulf Coast that would expand oil production and, they say, create thousands of jobs. But Obama would prefer to postpone that controversial matter and he threatened to veto any bill that forces a decision.

The president wants more study of alternate routes for the pipeline addressing environmental concerns, a process that would delay the construction until after the 2012 election. Because the project crosses international borders, it requires White House approval.

Meanwhile, Senate Minority Leader Mitch McConnell, R-Ky., calls the project “shovel-ready.” He said the Keystone XL will create about 20,000 jobs. Some studies, including an independent assessment from Cornell University, puts the new jobs number closer to 6,500.

House Speaker John Boehner said Friday that his chamber will not sign off on an extension of the payroll tax cut without including a provision to force a quick decision on the pipeline construction.

Some environmental groups oppose the project, but several unions support it, as do an unknown number of Democratic lawmakers.

Medicare benefits

As a means of paying for the payroll tax extension, the GOP plan calls for cuts to Medicare benefits for seniors making above $80,000 a year starting in 2017, then rising in increments for people making more than $100,000, $150,000, and $200,000, in Medicare Parts B (outpatient care) and D (prescription drugs).

Democrats oppose the Medicare cuts, saying they would be devastating to seniors.

Also at issue is the so-called physicians “doc-fix,” which would prevent a nearly 30 percent drop in reimbursements to doctors who care for Medicare patients, also scheduled to take place Jan. 1.

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Veto threats

Even if Senate Democrats went along with the House Republican plan — which seems highly unlikely — there’s another obstacle in the White House. The Republican payroll tax proposal has drawn veto threats from President Barack Obama.

On Tuesday, the White House complained that House Republicans were injecting “ideological issues into what should be a simple debate about cutting taxes for the middle class.”

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Compromise points

Last week, Republicans and Democrats indicated some willingness to meet in the middle. Here are a few places where they have compromised on issues that have become part of the payroll tax debate.

• Millionaires surtax

Democrats dropped their demand for higher taxes on millionaires as part of the payroll tax legislation. The surtax would have levied a 1.9 percent increase on taxpayers earning more than $1 million.

• Environmental regulations

Republicans also won their fight to block new federal regulations for light bulb energy efficiency, coal dust in mines and clean water permits for construction of timber roads.

• Cuba

Republicans abandoned attempts to roll back Obama administration policies that loosened restrictions on the rights of Cuban immigrants to send money to relatives in Cuba or travel back to the island to visit them.

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What’s next

As the two sides continue to negotiate, Obama has urged Congress to stay in session as long as it takes to get the payroll tax break extended.

• Compiled by Jamila Robinson, jrobinson@ajc.com

• Sources: Associated Press; Politico, The New York Times, CNN; Washington Post; House.gov, Senate.gov