How The Payroll Tax Fight Descended Into Chaos
Brian Beutler gives a nutshell summary of the payroll tax fight in congress so far.
This debate started when President Obama introduced his jobs bill, the priciest provisions of which were a one year renewal (and broadening of) this year’s payroll tax holiday, and an extension of emergency unemployment benefits.
Republicans were never wild about moving ahead with either of these items to begin with — but a very public campaign by President Obama made it too politically toxic for GOP leaders to oppose them outright. Instead they just made it as difficult as possible for either to pass. They could’ve agreed to support the measures without paying for them, or to pay for them with war savings, as some Dems to suggest, or with a mix of payfors that included a balanced mix of tax revenue and spending cuts. Likewise they could’ve agreed to pass the measures “cleanly” — without attaching unrelated policy riders to the legislation.
But they did neither. And it created a huge problem. Together, these items, plus a one-year patch to the Medicare physician reimbursement formula, cost a couple hundred billion dollars over the course of a year, and offsetting them via cuts to an already constrained budget is hard. The House-passed a one year measure included policy rider Dems abhorred, plus premium hikes on middle class Medicare beneficiaries and other controversial payfors. In the end, depending upon whom you ask, Senate Dem and GOP negotiators got within $60 and $90 billion of the total cost — but they couldn’t bridge the gap. Republicans refused to accept raising taxes to cover the rest, and so Harry Reid and Mitch McConnell settled upon a relatively clean two month extension.
That’s the bill that passed the Senate overwhelmingly on Thursday. It cost about $30 billion, paid for by increasing the fees lenders pay to Fannie Mae and Freddie Mac. Nobody in either party thinks a two month extension is ideal policy, but it has the advantages of preventing taxes from going up on a majority of Americans in this economy, and avoiding for now the ancillary fight over financing and GOP poison pills.
This scared House Republicans, who don’t want to relitigate the fight in the winter. So in a matter of 72 hours they discovered their love for renewing the payroll tax cut — but for a full year, minimum. Democrats would prefer this, too, but only if the GOP’s willing to make significant concessions on the other side of the ledger.