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February 13, 2012

Republicans Cave on Payroll Tax Cut, Propose Full-Year Extension Without Offsets

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In an impressive bit of caving, the House Republican leadership has given up on finding offsets for the payroll tax cut, proposing a bill that would extend the current cut to the end of the year without any funding. However, the other two pieces that were tied to the overall legislation at the end of last year, extended unemployment benefits and the “doc fix” to avoid a reset of Medicare reimbursement rates, would not be included.

Here’s the full statement from Speaker John Boehner, Majority Leader Eric Cantor and Majority Whip Kevin McCarthy. Afterwards we will parse it.

We support the work of our conference negotiators and continue to support a responsible resolution that extends current payroll tax relief, reforms and extends unemployment insurance, and includes a Medicare ‘doc fix.’ Republicans have attempted to reach an agreement and negotiated in good faith for months, and we will continue to do so. Unfortunately, to date, Democrats have refused virtually every spending cut proposed – insisting instead on job-threatening tax hikes on small business job creators – and with respect to the need for an extension of the payroll tax cut, time is running short.

Because the president and Senate Democratic leaders have not allowed their conferees to support a responsible bipartisan agreement, today House Republicans will introduce a backup plan that would simply extend the payroll tax holiday for the remainder of the year while the conference negotiations continue regarding offsets, unemployment insurance, and the ‘doc fix.’ If Democrats continue to refuse to negotiate in good faith, Republicans may schedule this measure for House consideration later this week pending a conversation with our members. Democrats’ refusal to agree to any spending cuts in the conference committee has made it necessary for us to prepare this fallback option to protect small business job creators and ensure taxes don’t go up on middle class workers.

This is not our first choice. Our goal is to reach a responsible agreement in conference. But in the face of the Democrats’ stonewalling and obstructionism, we are prepared to act to protect small businesses and our economy from the consequences of Washington Democrats’ political games.

Both the unemployment insurance and the doc fix expire at the end of February as well, but only the payroll tax cut would be extended without offsets in standalone legislation. The House can do that under its rules because they changed to “cut-go” at the beginning of last year. This allows tax cuts to go unfunded but not new spending. So I assume their explanation for this would be to refer to its rules.

The Senate does not have such rules exempting tax cuts from paygo. So they would have to designate the payroll tax cut as an emergency, or just secure a waiver of paygo regulations, in order to pass it without offsets.

There’s a bit of a question as to whether House Republicans have the votes to pass a payroll tax cut without offsets. A good chunk of Republicans would rather not pass a payroll tax cut at all. But the overwhelming majority of Democrats would probably vote for this (except for the Blue Dogs who wear the cloak of “fiscal responsibility,” I assume), and if the leadership introduces the bill, it’s likely to pass. I can’t see the Senate getting too tied up in rules issues not to pass this to get out of town and get their one-week President’s Day break, either.

As a policy matter, I should say, this is absolutely the right thing to do. If you’re going to do a payroll tax cut as a stimulus matter, you don’t offset it with anything. That increases demand. This of course flies in the face of everything Republicans have been saying about cutting the deficit, but I’m sure they’ll find a way to ignore that.

But this leaves the issue of unemployment benefits and the doc fix on the table. The leadership says that they would let conference negotiations continue on those matters. But a lot of the urgency for that conference committee goes away when you take the payroll tax cut out of the equation. That also happens to be the most expensive of the three measures, at a 10-month cost of around $110 billion. You would probably need $40-$50 billion (a back-of-the-envelope calculation) to offset UI and the doc fix.

But Republicans are determined to cut public employee salaries or jobs to extend these measures, and Democrats want a millionaire’s surtax or the elimination of oil company subsidies or something similarly inviolate to Republicans. Nobody really wants to see Medicare reimbursements fall 27%, so there’s still some hope to get an extension on the other two matters. But it just got more difficult, and the jobless benefits of millions of Americans hang in the balance.

UPDATE: There’s some talk, unconfirmed, that House Republicans will seek to put this payroll tax cut sans offsets bill on the suspension calendar, which would mean it would need a 2/3 vote to pass. That could make it tough to get it passed at all out of the House.

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