Payroll Tax Debacle <em>-</em> Has the GOP Gone Too Far?
Business + Economy

Payroll Tax Debacle <em>-</em> Has the GOP Gone Too Far?

Alex Wong/Getty Images

House Republican Majority Leader Eric Cantor of Virginia made an observation Wednesday morning about the congressional deadlock over extending a payroll tax cut and unemployment benefits that few could dispute: “People are sitting there across America scratching their heads, wondering what Washington is doing.”

Indeed, there was something of a “the-lunatics-are-running-the-asylum” feel to things in Washington one day after Cantor and the House Republicans overwhelmingly rejected a Senate-passed bipartisan bill that would have extended the payroll tax holiday and sorely needed unemployment benefits for two months, while Republicans, Democrats and the White House could hammer out a year-long solution.

The dispute between the two parties once again is over the size and scope of the tax and spending package and how to pay for it. House Republicans are insisting that a short-term solution would only create mass confusion among businesses that would have to adjust to a two-month extension of the tax holiday instead of a full year. Democrats insist the Republicans are simply looking for a way to deep-six the payroll tax extension because they don’t care that much about helping the middle class and they don’t think the tax break is doing much to spark economic growth.

Former Sen. Alan Simpson, R-Wyoming, who was co-chair of the president’s fiscal commission, told MSNBC: “I’m sitting out here in the wilds of Cody, Wyoming, on a beautiful winter day and just shaking my old bald dome. I mean this cannot be the way to run the nation’s business. . . This is B.S. and mush, and the people are sick and tired of it.”

After blowing up the deal negotiated by Senate Democratic and Republican leaders and overwhelmingly approved by the full Senate last Saturday , Cantor and House Speaker John Boehner, R-Ohio, summoned reporters this morning to say they are ready to roll up their sleeves and go to work to negotiate a year-long plan more acceptable to their members. To make the point, the leaders presented eight House Republican “conferees” or negotiators who were selected to take part in the talks with the Senate and the White House.

“All we’re asking is to get the Senate members over here to work with us to resolve our differences so we can do what everyone wants to do,” and extend the payroll tax cut, Boehner said plaintively. Cantor appeared equally exasperated, noting, “The President sits probably a mile away from here down Pennsylvania Avenue , while we’re sitting here. The differences between us are not very great . . . We’ve got time. Let’s get to work.”

It’s small wonder that House Republicans are suddenly eager to reopen negotiations over the popular proposals for extending a two-percentage-point reduction in the Social Security payroll tax for 160 million Americans. At least eight Senate Republicans have publicly denounced the House Republican parliamentary action that prevented an up-or-down vote on the Senate plan yesterday. Rep. Chris Van Hollen of Maryland, the ranking Democrat on the House Budget Committee, contends that the Senate-passed measure would have been approved in the House if Boehner and others hadn’t stood in the way of a vote. “This House leadership is not interested in bipartisan solutions,” he said.

Top the conservative Wall Street Journal lambasted Boehner and Senate Republican Leader Mitch McConnell of Kentucky for mishandling the payroll tax cut issue and handing President Obama and the Democrats a huge political advantage. “Given how [McConnell] and House Speaker John Boehner have handled the payroll tax debate, we wonder if they might end up re-electing the President before the 2012 campaign even begins in earnest.”

For now, at least, Democrats are showing little interest in doing anything that would let the House Republicans easily off the hook, although a stalemate through the end of the year could mean serious economic problems for many Americans. More than three million people likely will lose unemployment insurance in the near future, and middle income families stand to see their tax bills rise by an average of $1,000 and $1,500 with the expiration of the payroll tax holiday.

Obama called Boehner today to urge him again to allow a vote on a Senate-passed measure that would extend a payroll tax holiday for two months, according to White House spokesman Jay Carney. Obama emphasized that Senate Republicans and Democrats had joined to pass the bipartisan measure, and he said House Republicans should drop their resistance to it and pass it as well, giving the two sides time to work out a full-year extension that the House GOP lawmakers have demanded.

Obama, who has put off his vacation to Hawaii for the time being, also conferred with Senate Majority Leader Harry Reid, D-Nev., on strategy. Reid has repeatedly refused to reopen negotiations on a year-long plan until the House approves the compromise that passed the Senate last weekend, 89 to 10. Thirty-nine of the 47 Senate Republicans voted for the package, giving it a clear bipartisan sheen. Boehner signaled late last week that he would go along with that plan, but backed down after many conservative rank and file members sharply opposed the deal. McConnell then changed course as well and backed Boehner’s call for derailing the deal.

In a letter today, Reid urged Boehner to bring the House back to approve the Senate bipartisan plan as soon as possible “to avoid a middle class tax increase on Jan. 1.” “As the Senate vote made clear, there is no reason for this to be a partisan issue,” Reid wrote. “I am fully confident that we can work out our differences and find common ground on a year-long extension. But in the meantime, families should not have to worry that they will wake up to a tax increase on January 1, 2012,” Reid wrote.

Obama at one time insisted that Congress approve a year-long tax cut extension and extend the unemployment insurance benefits as part of his jobs package, but now he too is adamant that the House must approve the Senate-passed bill to protect millions of Americans from a tax increase that might further harm the economy. Obama said that it’s time to “put politics aside, put aside issues where there are fundamental disagreements, and come together on things we can agree with” while putting an end to political brinksmanship”

To be sure, a last-minute deal is not out of the question. And the administration and Republican and Democratic leaders demonstrated last summer that they can move swiftly with parliamentary sleight of hand to cobble together a final agreement. But despite assertions by Boehner and Cantor that the two sides are not that far apart, fundamental differences over how to pay for a full year of extended tax breaks and unemployment insurance is what got them into the current fix.

A package that would extend the tax cut for a full year as well as extend unemployment insurance and avert a sharp reduction in Medicare reimbursement rates for doctors – the so-called Medicare “Doc Fix” -- would cost an estimated $200 billion. Last week, the House passed a Republican version of the measure that would increase Medicare premiums for upper-income seniors, as well as freeze federal workers salaries and shrink the size of the federal workforce.

House Democrats by contrast sought to raise taxes on wealthy Americans to offset the payroll tax cut. Senate Democrats at one point proposed a surtax on millionaires, but later dropped that demand. The two-month compromise finally engineered by Reid and McConnell would cost $36 billion and would be offset by raising the fees that Fannie Mae and Freddie Mac charge lenders for guaranteeing loans.

Sen. Chuck Schumer of New York, the third ranking Democrat in the Senate, said today that Democrats made many compromises in reaching the bipartisan deal with McConnell, and that it was “an irrational move” by Boehner to disavow that has backfired on the Republicans.

“If they make us a formal offer [for a long-term compromise], we will consider it,” Schumer said, but first the House has to approve the two month extension.