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Congress May Skip Payroll Tax Showdown This Time

Filed by KOSU News in Business.
February 15, 2012

Congress appears to have avoided another showdown over the payroll tax reduction that’s been pumping billions of dollars back into the economy. There may even be a deal ahead on jobless benefits and payments to Medicare doctors.

The last time Congress extended the payroll tax holiday was in December when it passed a two-month extension tied to two other measures.

One extended unemployment benefits and a second fixed a formula by which Medicare doctors are paid. The Medicare fix would stop big cuts in reimbursements for doctors.

But Democrats had rallied around the tax-cut extension and the jobless benefits. They had pushed for the three-part package since November.

“All three need to move forward that’s our position,” said Steny Hoyer, House Minority Whip. “Our concern is going to be that somehow they would deal with one-third of what we ought to do and leave the other two behind. We don’t want to put at risk those who are unemployed and fear that they’re going to fall off the unemployment rolls. And, we certainly don’t want to put at risk Medicare availability for seniors.”

But on the Republican side, the paramount goal was to offset any additional spending without cutting too deeply into defense.

“If this were something that I thought would really stimulate economic growth, then you don’t have to pay for it,” said Republican Sen. Jon Kyl of Arizona. “But the evidence is pretty clear that these sort of one of time only, or short term stimulus, they’re not really successful at putting people back to work.”

That’s essentially where it’s all stood for weeks. One side argued pay for the tax cuts and unemployment insurance within budgets. The other side argued that they should be paid for later.

Maya MacGuineas, president of the bipartisan Committee for a Responsible Federal Budget, notes that both sides are right — sort of.

“Generally unemployment insurance is found to be one of the things with the highest multiplier effect, or bang for buck, when it’s put into the economy,” she said.

MacGuineas said that’s because people on unemployment insurance are likely to spend their entire check, but the payroll tax cut is different.

“The payroll tax cut is not so well targeted, it goes to people who need it and will spend it right away,” she said. “It also goes to many people who don’t, which means they’ll pocket it and put it in the bank. It’s nice to have that extra money to save but it doesn’t do a whole lot to boost the recovery in the short term.”

Then there was talk of something uncommon on Capitol Hill these days: compromise.

Speaker John Boehner first floated the trial balloon about a payroll tax cut that wouldn’t have to be paid for, and that produced something you won’t hear very often from Democrats.

“I think Speaker Boehner is right,” said Sen. Democrat Dick Durbin of Illinois. “At this point, let us extend the payroll tax cut. But the last point I will make, is the extension of unemployment benefits is of equal value to the economy and immeasurable value to those who are out of work, struggling to find a job.”

Almost as Senator Durbin was saying that, a compromise was beginning to take shape with both parties taking part.

The tentative deal would have the payroll tax reduction – worth about $100 billion a year — added to the deficit. But the dead would find enough spending cuts to offset the cost of changes to unemployment insurance and the doctor reimbursement fix in the short run.

In a contentious closed-door meeting, House Republican leaders tried to sell the plan to those who remained unconvinced.

“We’ve got to be honest with the American people,” said Rep. Allan West of Florida. “We’ve got to be held accountable for some of the things we’re doing that could have long-term ramifications. So I gotta to think about this. I have to pray about it tonight but right now this doesn’t look like a good deal for the American people.”

But Maya MacGuineas, of the Committee for a Responsible Federal Budget, says this is only one compromise among many that Congress will have to make, and soon. [Copyright 2012 National Public Radio]

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