UK: Payroll tax cut wins vote

Guardian

Congress passes payroll tax cut as GOP relents on savings demand

Boost for Obama as Republicans in Congress agree on maintaining tax break for 160m middle-income Americans
By Chris McGreal

US congressional leaders signed a deal extending a tax break for working Americans shortly before a midnight deadline on Wednesday after Republicans backed down on a demand that it be paid for by budget cuts.

The agreement continues a payroll tax cut until the end of the year for about 160 million people that has been in place since the Bush era and will save the average worker about $1,000.

A vote on the legislation could be held as soon as Friday in the House of Representatives. There was a last-minute hitch in the Senate as a Maryland senator objected to a separate provision in the same legislation over federal workers' pension contributions.

Republicans had demanded that the $100bn cost be met by cuts to other government programmes. But they retreated as it became clear that the dispute threatened to become an election-year issue, with Democrats saying that the GOP made no such demand in protecting tax breaks for the very wealthy which have already cost the US treasury $1tn over the past decade.

The tax cut has been periodically renewed, most recently in December, when it was extended for just two months amid Republican dissent.

The latest extension is due to expire at the end of this month. If the Republican-controlled House of Representatives does not vote to extend it, then the higher tax rate will automatically kick in.

In November, John Boehner, the speaker of the House, said there was "no debate" that an extension of the tax cut would be paid for by budget cuts.

"I think you can take to the bank the fact that they will be paid for," he said.

But the Republicans had good reason to avoid an election-year fight on this issue. The favourite to land the GOP nomination, Mitt Romney, pays a much lower tax rate on his $220m fortune. Obama's repeated demands for the rich to "pay their fair share" has resonance with many voters.

Republican members of Congress said Boehner told them the party was losing the public relations battle, and that they needed to stop it becoming an election issue. The Republican leadership feared it would be open to accusations of increasing taxes on workers while protecting millionaires in the run up to November's presidential vote.

"The mood is to get it off the table," said Dennis Ross, a Republican congressman. "We've got to move on to another issue."

Senator Charles Schumer, a Democrat, said the Republicans were in "full-scale retreat" on the tax issue.

"We're very glad that they gave in on the payroll tax cut," he said.

As negotiations continued on Tuesday, Obama gave notice that he would turn the matter in to an election issue if a deal was not reached.

"Congress needs to extend that tax cut – along with vital insurance lifelines for folks who've lost their jobs during this recession – and they need to do it now, without drama and without delay. No ideological sideshows to gum up the works. No self-inflicted wounds. Just pass this middle-class tax cut," Obama said.

The tax cut extension will save a worker earning $50,000 a year about $20 a week.

The agreement also prolongs unemployment benefits for the rest of the year, and maintains the present level of payments to doctors treating the elderly on the Medicare scheme. The $50bn cost of the two measures is covered by budget cuts.

Democrats were also able to resist Republican demands to slash the number of weeks for which the unemployed can draw benefits, and other demands such as drug tests for benefit applicants.

The Republicans did make some inroads in to reducing the number of weeks the unemployed can claim benefits. It been extended to 99 because of the depth of the recession. The Republicans wanted to reduce the claim period to a maximum of 59 weeks. The two sides eventually settled on a maximum of 73 weeks in those states with the highest jobless rates.

The Republicans also dropped a demand that would require low-income workers who claim a tax credit for their children to have a social security number. The measure was aimed at preventing illegal immigrants from claiming benefits but critics said that many of the children who would be affected were born in the US and are therefore citizens.

The deal marked a shift for the Republican leadership, which has to a degree been hostage to the demands of the most recent intake of Tea Party-aligned members of Congress, who were elected to slash government spending.

Boehner has been caught between the Tea Party contingent, whose constituents closely monitor their commitment to oppose "big government", and more mainstream Republicans who fear that the party's belligerent tactics in Congress are costing it support among swing voters.


http://www.guardian.co.uk/world/2012/feb/15/us-congress-payroll-tax-cut