Houses Passes Payroll Tax Cut

The U.S. House of Representatives passed legislation that would extend an employee payroll tax cut for one year while freezing pay for federal workers, restructuring unemployment compensation and speeding approval of a Canadian pipeline that would stretch to Texas.

Today's 234-193 vote sends the $202.4 billion measure to the U.S. Senate, where Majority Leader Harry Reid, a Nevada Democrat, has said it won't advance. The Senate may vote on blocking the House measure this week before negotiations begin on legislation that would have a better chance of clearing both chambers of Congress and being signed by President Barack Obama.

The payroll tax cut has been caught up in partisan politics, with Obama portraying Republicans as willing to allow a middle-class tax increase while Republicans raised concerns about covering the cost of the tax cut. If Congress doesn't act by Dec. 31, employees will begin paying a 6.2 percent tax on the first $110,100 in wages in January, up from 4.2 percent this year. The payroll tax funds Social Security.

The bill “will help families struggling in this economy,” said House Ways and Means Committee Chairman Dave Camp, a Michigan Republican who sponsored the legislation. “The Senate should quickly pass it.”

Beyond extending the payroll tax at the 4.2 percent rate, the Republican bill includes revamping the unemployment compensation system. It would reduce maximum benefits from 99 weeks to 59 weeks while requiring recipients of unemployment benefits to be actively looking for work or trying to get a high-school diploma. States also could require drug tests as a condition of receiving benefits.

Senator Richard Durbin of Illinois, the chamber's No. 2 Democrat, said yesterday he was “troubled” by the reduction in unemployment compensation and called the drug-testing provision “nothing short of outrageous.”

“The Republican suggestion that they must all be drug-addled crazy addicts who are not really seriously looking for a job is an insult to a lot of wonderful people who are doing everything in their power to get back to work,” he said in an interview.

One of the most contentious provisions of the Republican payroll package is a provision that would expedite approval of TransCanada Corp.'s Keystone XL pipeline. The pipeline would link Canada's oil sands with Texas refineries.

The bill would require a decision on the issue within 60 days. The Obama administration has pushed back the issuance of a permit to 2013, a move Republicans criticize as designed to delay action until after the 2012 elections.

Pipeline Issue

Obama said Dec. 7 that he would reject linking the pipeline to an extension of the payroll tax cut. White House press secretary Jay Carney said yesterday that including the Keystone issue in the payroll tax cut bill sends the message that “there's a political tradeoff to be had that extending tax cuts for middle-class and working Americans should only occur in return for a political gift, or an ideological item.”

“We simply disagree,” Carney said.

Boehner said yesterday he wouldn't rule out negotiating a compromise with Democrats if they reject the Keystone provision. Still, he dismissed criticism that the House bill imposes an arbitrary deadline for the administration to act on the pipeline.

“The only thing arbitrary about this decision is the decision by the president to say 'well, let's wait until after the election,'” Boehner said.

The bill also finds significant savings from provisions affecting the federal workforce. Republicans said the bill would save $26 billion by extending through 2013 a pay freeze for federal workers and $36 billion by revising the co-payment structure for civilian federal retirees.

More savings would come from health-care changes. People who receive subsidized insurance under the 2010 health-care law and then see their incomes rise would be required to repay the government more money than under current law. High-income Medicare recipients would be required to pay higher premiums.

The bill would require taxpayers to have a Social Security number to claim a portion of the refundable child tax credit, saving $9.4 billion. Republicans, citing reports from government auditors, say the current rules allow illegal immigrants to claim the credit.

Republicans also want to extend the federal welfare program and prevent benefits from being accessed at automated teller machines in strip clubs, liquor stores and casinos.

The legislation would require the Environmental Protection Agency to delay new pollution standards for industrial boilers, extending a deadline for five years for companies to comply.

The agency has said the rules would cut pollution of mercury and soot. The regulations are set to be in place in March, with the first restrictions taking effect two years later.

The rule, which may require upgrades of pollution controls at paper mills, chemical manufacturers and refineries, will cost $1.5 billion a year, according to an EPA analysis. The House passed a similar measure in October to delay the boiler standard, a bill that the administration threatened to veto.

The bill is H.R. 3630.

Bloomberg News

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