Congress approves payroll tax cut; work on longer-term deal remains

Speaker of the House John Boehner of Ohio (center) is surrounded by reporters after leaving a House vote on the payroll tax cut in Washington, on Friday, Dec. 23, 2011.
Jacquelyn Martin | AP
Speaker of the House John Boehner of Ohio (center) is surrounded by reporters after leaving a House vote on the payroll tax cut in Washington, on Friday, Dec. 23, 2011.
Posted Dec. 23, 2011, at 11:41 a.m.
Last modified Dec. 23, 2011, at 6:06 p.m.

WASHINGTON — Congress on Friday quickly and quietly approved a two-month extension of the Social Security payroll tax cut, ending a week of rancor and assuring that more than 160 million people will avoid a 2 percentage point payroll tax increase next year.

But the calm, collegial legislative day was deceptive. When lawmakers return in January, they’ll remain far apart on agreeing to a longer-term deal.

The package approved Friday — a major victory for President Barack Obama and a setback for Republicans in the House of Representatives — will assure that the average employee will avoid paying $80 a month more in Social Security taxes after Jan. 1. The rate for employees will remain at the 2011 level of 4.2 percent. But if no action is taken before Feb. 29, it will rise to 6.2 percent.

Congress’ agreement, reached Thursday after rebellious House Republicans abandoned their bid for a one-year deal before Jan. 1, also continues current payment rates for Medicare physicians, which otherwise would have dropped by 27.4 percent starting Jan. 1, and retains up to 99 weeks of unemployment benefits for long-term jobless workers.

The measure also provides for an expedited review of the Keystone XL pipeline. The 1,700-mile project would bring oil from oil sands in western Canada to the U.S. Gulf Coast. Obama wanted to delay the decision until late 2013 — after November’s elections — as environmentalists hold strong reservations. Republicans insisted on including the pipeline decision.

Obama signed the bill into law on Friday and praised Congress. He then headed to Hawaii for the Christmas-New Year’s holiday, a trip he had planned to begin Dec. 17. His wife and children went to Hawaii last week.

“Because of this agreement, every working America will keep their tax cut,” Obama said in a brief appearance in the White House press room. “When Congress returns, I urge them to keep working without drama, without delay, to reach an agreement that extends this tax cut as well as unemployment insurance through all of 2012.”

Obama said he thought that constituent voices helped break the deadlock.

“You didn’t send us to this town to play partisan games and to see who’s up and who’s down. You sent us here to serve and make your lives a little bit better, to do what’s right,” he said.

There were few signs that Congress is getting the message.

House Majority Leader Eric Cantor, R-Va., maintained that the two sides are not far apart, but Rep. Chris Van Hollen of Maryland, the top House Budget Committee Democrat, countered: “Just not true. I mean, that’s make-believe.”

Negotiators from each chamber are expected to convene in early January to pursue a compromise. The senators and representatives chosen are staunchly loyal to party leaders and their party lines.

There are three major areas of disagreement:

—Paying for the breaks. Democrats, including Obama, wanted a surtax on millionaires. The Senate, on largely party-line votes, rejected that idea. House Republicans countered with a series of proposals that Democrats found unpalatable, including a federal pay freeze.

The current two-month package, costing an estimated $33 billion, will be funded by raising fees levied by mortgage giants Fannie Mae and Freddie Mac. But just preserving the Social Security tax break alone for a year will cost an estimated $112 billion.

—Revamping the unemployment benefits system. House Republicans want to reduce the maximum number of benefit weeks to 59 and make other changes. Democrats have resisted.

—Protecting the Social Security trust fund. Another year of payroll tax breaks means less revenue for the trust fund, a serious concern for many in both parties. Supporters of the tax break insist there’s no risk to the fund because the Treasury will make up lost revenue. Opponents say that breaks the trust created by having a designated tax paying for the benefits, which beneficiaries had paid in all their lives.

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