House GOP leaders to propose extension of payroll tax cut

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Hesitant to be seen as holding up a payroll tax break for American workers, House GOP leaders will put forward a new proposal to extend the tax cut, giving up for now on the GOP-led requirement that it must be paid for, as talks on a compromise with Democrats have stalled.

House Speaker John A. Boehner (R-Ohio) and other leaders said their backup plan could come for a vote as soon as this week, as Congress struggles to find common ground before the tax break expires Feb. 29. Keeping the tax holiday is President Obama’s top legislative priority.

“This is not our first choice,” said Boehner and his leadership team, including Majority Leader Eric Cantor (R-Va.), in a statement. “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.”


Republicans are seeking to shift the debate on the tax break for 160 million working Americans. Last year’s showdown left them badly battered in the polls as they insisted the tax break be paid for with cuts elsewhere in the budget, and some Republicans said the tax cut was not a worthwhile benefit.

The new GOP proposal would allow the tax break to continue without having yet resolved the tough decisions over how to pay for the $160-billion package -- a decision that could rile fiscal conservatives within Boehner’s right flank who insist on keeping deficits low. Negotiations under the GOP proposal would continue.

Democrats welcomed the overture as a “major breakthrough.”

“Send it on over,” said a Democratic aide familiar with the talks.

The benefit trims by 2 percentage points the tax the workers pay into Social Security, providing about $20 a week in the pockets of average workers that economists say is helping to stimulate the economy. The retirement fund would be replenished by the cuts to other programs.

Workers have enjoyed the tax break since January 2011, and Congress agreed late last year to extend it through February. But negotiators have run into the same roadblocks in recent weeks as they struggle to find agreement on how to pay for the tax break for the rest of 2012.

Republicans want the $160-billion cost of the package to be offset by trimming federal workers’ pay and other domestic cuts that Democrats refuse. Democrats suggested a surtax on those with incomes beyond $1 million to pay for the cost, and have since considered finding money by closing corporate tax loopholes.

Democrats are in no mood to bargain with Republicans, as they believe voters are more interested in taxing the wealthy or ending loopholes rather than cutting domestic programs. The prolonged negotiations allow Democrats to continue the narrative that Republicans are demanding steep cuts as a way to pay for a middle-class tax break.


The package also includes an extension of long-term unemployment benefits and prevents an annual pay cut for doctors who treat Medicare patients. But the new GOP proposal would not allow those programs to continue until the decision over how to pay for the package is resolved -- a way for Boehner and other Republicans to gain leverage and keep Democrats at the negotiating table.

Democrats had initially led passage of the payroll tax break without requiring that it be paid for, when it was part of 2010 package to continue tax cuts on wealthier Americans and others from the George W. Bush administration. But over the last year as budget battles dominated Washington, the GOP insisted -- and Obama agreed -- that the costs cannot be added to the nation’s debt load.

Sen. Harry Reid (D-Nev.), the majority leader, had suggested Democrats would put forward their own proposal, possibly this week, as talks have stalled.