Politics & Policy

The House, Harry Reid, and the Payroll Tax

Yesterday the House voted to reject a Senate plan for temporarily extending the payroll-tax cut and subsequently moved to recess, and they deserve credit for doing so.

This move does not eliminate the possibility of extending the tax cut, which expires at the end of December: The House previously passed a bill extending the cut for a full year, and that bill is good policy. It doesn’t increase the deficit. It forces a decision on the Keystone XL pipeline. And it’s President Obama’s major year-end priority. So why is the Democratic Senate blocking the bill’s path between Capitol Hill and the White House signing desk, and pushing the bill the House rejected instead?

Because Harry Reid doesn’t like how the House version is paid for. Having failed — not once, but multiple times — to offset the payroll-rate cut with a new surtax on job creators, Senate Democrats were forced to huddle with Republicans to find common ground. What they came up with were enough offsets to fund a 60-day extension, mostly via increased fees on Fannie and Freddie. (This makes a certain amount of sense: Republicans abhor the government-sponsored enterprises, Democrats adore fees.)

The Senate plan, then, was to pass the temporary extension, send it back to the House, and enjoy a lengthy Christmas holiday. The New Year, they seem to believe, will bring with it fresh opportunities to kick the can down the road. But the 60-day extension is both irresponsible and unworkable, and House Republicans were right to hold the line against it, even if it keeps Congress in Washington through these holy nights.

Don’t take our word for it. Ask the National Payroll Reporting Consortium, a non-profit, non-partisan trade association of tax-service providers. NPRC warns that a last-minute, temporary extension of the payroll-tax cut could create chaos for small businesses, causing “substantial problems, confusion and costs affecting a significant percentage of U.S. employers and employees.” The National Association of Wholesale Distributors agrees, warning that the Senate measure “would exacerbate and escalate the uncertainty about fiscal policies that has inhibited business activity and slowed economic recovery . . . for the last several years.”

By contrast, the House bill is paid for by, among other things, extending the federal pay freeze, reforming government-employee pensions, introducing modest means-testing to Medicare, and stepping up (sadly necessary) efforts to prevent millionaires and illegal immigrants from improperly receiving government checks. Such reforms should hardly be controversial, let alone a cause for which Senate Democrats are willing to make 170 million American taxpayers suffer.

The bill contains more conservative provisions as well, such as checking the devolution of unemployment insurance into de facto welfare, undoing onerous EPA regulations, and implementing a two-year Medicare “doc fix” partially offset by further defunding of Obamacare. But as Speaker Boehner implied in a letter to President Obama, there is room for negotiation on the contours of these provisions — if the Senate will appoint negotiators to join House Republicans in a conference committee, something they have so far been unwilling to do.

This ought not persist. On one side of the table sit the House of Representatives, the president’s avowed goal of a year-long extension, the taxpayers, and time. On the other sits Harry Reid, who could be in for a very blue Christmas.

Editor’s note: Because of an editing error, this article has been amended since its original posting.


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