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Wed February 15, 2012
Congress May Skip Payroll Tax Showdown This Time Around
Congress appears to have avoided another showdown over the payroll tax reduction that has been pumping billions of dollars back into the economy. There may even be a deal ahead on jobless benefits and payments to Medicare doctors.
The last time Congress extended the payroll tax holiday was in December, when it passed a two-month extension tied to two other measures. One extended unemployment benefits, and the second fixed a formula by which Medicare doctors are paid. The Medicare fix would stop big cuts in reimbursements for doctors.
But Democrats had rallied around the tax-cut extension and the jobless benefits. They had pushed for the three-part package since November.
"All three need to move forward — that's our position," House Minority Whip Steny Hoyer of Maryland said Tuesday. "Our concern is going to be that somehow they would deal with one-third of what we ought to do and leave the other two behind. We don't want to put at risk those who are unemployed and fear that they're going to fall off the unemployment rolls. And, we certainly don't want to put at risk Medicare availability for seniors."
But on the Republican side, the paramount goal was to offset any additional spending without cutting too deeply into defense.
"If this were something that I thought would really stimulate economic growth, then you don't have to pay for it," said Republican Sen. Jon Kyl of Arizona. "But the evidence is pretty clear that these kinds of one-time only or short-term stimulus, they're not really successful at putting people back to work."
That's essentially where it has all stood for weeks. One side argued: Pay for the tax cuts and unemployment insurance within budgets. The other side argued that they should be paid for later.
Maya MacGuineas, president of the bipartisan Committee for a Responsible Federal Budget, said both sides are right — sort of.
"Generally, unemployment insurance is found to be one of the things with the highest multiplier effects, or bang for buck, when it's put into the economy," she said.
That's because people on unemployment insurance are likely to spend their entire check, she said. But the payroll tax cut is different.
"The payroll tax cut is not so well targeted; it goes to people who need it and will spend it right away," she said. "It also goes to many people who don't, which means they'll pocket it, they'll put it in the bank. It's nice to have that extra money to save, but it doesn't do a whole lot to boost the recovery in the short term."
Then there was talk of something uncommon on Capitol Hill these days: compromise.
Speaker John Boehner, R-Ohio, first floated the trial balloon about a payroll tax cut that wouldn't have to be paid for, and that produced a response that isn't heard often from Democrats on Capitol Hill.
"I think Speaker Boehner is right," said Illinois Sen. Dick Durbin. "At this point, let us extend the payroll tax cut. But the last point I will make: The extension of unemployment benefits is of equal value to the economy and immeasurable value to those who are out of work and struggling to find a job."
Almost as Durbin was saying that, a compromise was beginning to take shape, with both parties taking part.
The tentative deal would have the payroll tax reduction — worth about $100 billion a year — added to the deficit. But the deal would find enough spending cuts to offset the cost of changes to unemployment insurance and the doctor reimbursement fix in the short run.
In a contentious closed-door meeting, House Republican leaders tried to sell the plan to those who remained unconvinced.
"We've got to be honest with the American people," said Florida Rep. Allen West. "We've got to be held accountable for some of the things we're doing that could have long-term ramifications. So I've got to think about this. I've got to pray about it tonight. But right now this doesn't look like a good deal for the American people."
But MacGuineas, with the Committee for a Responsible Federal Budget, said this is only one compromise among many that Congress will have to make, and soon.