Senate extends payroll tax cut; measure heads to House

The Senate passed a temporary extension of President Obama’s payroll tax cut, sending to the House a package that would preserve the $1,000 average tax break for 160 million working Americans – and inserting the issue squarely into the 2012 political campaign.

Senators overwhelmingly approved the two-month extension of the tax break in a rare Saturday session and were poised to pass a spending bill to fund the government and avert a shutdown. The vote was 89-10, with seven Republicans and two Democrats and one independent opposed.

Neither side was pleased with the short-term deal, which also includes an extension of long-term unemployment benefits and a provision that speeds up a decision on the controversial Keystone XL pipeline.

But senators were unwilling to risk political fallout from allowing a lapse in the tax break, which expires Dec. 31, and argue the issue in the months ahead.

“This is an important day,” said Senate Majority Leader Harry Reid (D-Nev.).

The White House believes the tax holiday, and the jobless benefits, are key to stimulating the economy next year, and sought a tax on millionaires to pay for it.

Republicans have been skeptical that the tax break, which has been in place all year and shaves the Social Security contribution workers pay from 6.2% to 4.2%, helps the struggling economy. They pushed for inclusion of the Keystone measure after Obama shelved a decision on the pipeline project until after the 2012 election and threatened to veto any package that included it.

“What we said is, let’s also do something that would help create jobs,” said Sen. Mitch McConnell of Kentucky, the GOP leader. “Let’s start to change the equation here and do something that will actually get at the problem.”

The stalemate came as Republicans rejected taxing those who earn beyond $1 million, and Democrats resisted steep budget cuts to pay for the package. The package is estimated to cost more than $30 billion and is paid for with new fees on home loans from Fannie Mae and Freddie Mac, the government-backed mortgage entities.

The deal now goes to the House, whose members are expected to return to Washington next week. House Speaker John A. Boehner (R-Ohio) has not publicly signed off on the deal, and rank-and-file Republicans have been highly resistant to the payroll tax holiday.

Adding the provision on Keystone was crucial to winning GOP votes, and the White House has since backed off its veto threat. Because the State Department has said it cannot approve a permit for the pipeline between Canada and the Gulf of Mexico in the 60 days required by the measure, a veto may be unnecessary.

While Boehner may struggle to bring Republicans on board, House Democrats are likely to give the package support, especially because the deal preserves long-term unemployment benefits that are a Democratic priority.

Those Republicans voting against the payroll package include Sen. Bob Corker of Tennessee, Sen. Jim DeMint of South Carolina, Sen. Ron Johnson of Wisconsin, Sen. Mark Kirk of Illinois, Sen. Jerry Moran of Kansas, Sen. Jeff Sessions of Alabama and Sen. Richard Shelby of Alabama. Democratic opponents included Sen. Joe Manchin of West Virginia and Sen. Patrick Leahy of Vermont. Independent Sen. Bernard Sanders of Vermont also voted no. Sen. Rand Paul (R-Ky.) did not vote.

Reaching a deal on the payroll tax holiday had complicated passage of a year-end spending measure to keep the government funded and avoid a shutdown this week.

Senators were on track to pass a $915 billion spending package to fund the government through the end of the fiscal year, in September, and send it to the White House for the president’s signature. The House approved the package, which includes funds for states hit by recent disasters, earlier this week.

lmascaro@tribune.com

khennessey@tribune.com