Get ready for another fight in Congress over payroll taxes

Chris Moody
February 6, 2012

Congress has until Feb.29 to agree to extend the payroll tax cut, or the tax will rise 2 percentage points to the original rate of 6.2 percent. The president signed a two-month extension of the tax cut in December, as part of a deal that also extended unemployment insurance and avoided a reduction in Medicare fees for doctors.

Republicans are split on whether to extend the tax cut, although the party's congressional leaders say a deal will be reached.

Reducing the payroll tax cuts into revenues for Social Security, a consequence that Republicans point to as a reason for opposing the lower rate. Democrats argue that the tax cut boosts economic growth by allowing more spending in the marketplace.

To find a deal, each party has dispatched a team of bargainers who are working to hash out a bill they think could pass a Republican-controlled House and a Democrat-controlled Senate. Extending the rates through the rest of 2012 will cost the government about $160 billion, and lawmakers are seeking a way to replace that revenue.

The top Republicans in the House and Senate, John Boehner and Mitch McConnell, have expressed optimism that the rate will be extended.

"There's a broad agreement on doing the payroll tax holiday through the end of the year. Republicans and Democrats agree on that," McConnell said on CNN's "State of the Union" last week. "The problem is the paying for it."

There are still major issues to be resolved: In return for extending the tax rate, Republicans want to include a provision to override President Barack Obama's decision to block the Keystone Pipeline, a Canadian oil line that would transport synthetic crude oil from Canada to American refineries in Illinois, Oklahoma and along the Gulf Coast.

There have also been calls within Republican circles to require those seeking the unemployment benefits that will be extended in the deal to take drug tests to remain eligible.

Given Congress' shaky record of playing "Let's Make a Deal," Democrats in the Senate are working out a backup plan. During a conference call on Friday, Senate Majority Leader Harry Reid warned that if it appears a deal won't be reached, he will force a vote on the payroll tax in the Senate.

"I want everyone to be put on notice that we're not going to walk away from this without having some serious votes," Reid said. "If they're unwilling to do something on a bipartisan basis, then we're going to do something to move the bill forward."

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