The payroll tax cut extension: Where are we?

The House just rejected the Senate compromise bill that extends this year’s payroll tax cut for two months into 2012. Well, they didn’t so much reject it. Okay, this is complicated. Let’s see where we started, where we are, where we’re going, and how we got here.

First, let’s make one point clear: This whole mess has almost nothing to do with the payroll tax cut itself. Both sides agree it should be extended. The hullabaloo is over additions that Republicans want made to the bill. Riders, as many people call them. Most of them are completely unrelated to tax policy at all. But, we’ll get to that in a moment.

Remember last December’s lame-duck Congress? The one where a huge number of deals were made, mostly because everybody involved realized that with a radicalized Republican House about to take power, it would be the last chance for any deals? Well, among the many deals made was that payroll taxes (different from income taxes—yes, this shit is complicated—payroll taxes are what you pay out of your paycheck for Social Security and Medicare; you may see this as “FICA” on your pay stub) were cut by 2%. Not enough to really hurt the programs for which they fund (they tend to run surpluses—bet you didn’t know that!). But, enough to put a small amount of extra money in people’s pockets, especially since a lot of people were not getting raises in the new year.

The tax cut was made temporary, with the hope that the economy would rebound enough in the next year that everybody could easily go back to business as usual. Sadly, the economy didn’t pick up as much as hoped. You can pretty much blame Europe and a year full of Republicans shutting down the government/forcing default for that.

Regardless, at the end of the year, the payroll tax cut expires. So, the President and Congress decided that it should probably be extended for another year. Again: it’s not that much money in aggregate, but a small cushion for those out there who still aren’t getting raises, or at best getting small ones.

Watch how your small cost-of-living raise will go away if the cut expires. Using this calculator from the White House website, I plugged in a standard $45,000 salary for a married couple. They will pay $900 extra next year if the cut is not extended. If that salary is the result of a (generous) 2% cost-of-living raise, the raise ($900) is gone.

So, if everybody agrees that it should be extended, why isn’t it? Because Republicans in the House are demanding a number of additional pieces be added to the bill. For one, they’re obsessed and enamored with the Keystone XL oil sands pipe project, a pipeline that will go from the oil sands in Canada to refineries in the Gulf of Mexico. The administration has delayed permitting the project, citing the enormity of it and the potential environmental hazards, and the need for more research. Republicans claim it should be fast-tracked, claiming that the project will create a large number of jobs. In addition, they’re demanding that the extension be paid for by making cuts to discretionary spending, even though Congress just finally passed an appropriations bill this weekend. The problem, other than that, is that stimulus spending (whether it’s spending or chopping taxes: both are technically spending) should by its very nature not be immediately paid for.

Despite the impasse, Democrats and Republicans in the Senate worked this weekend to craft a compromise, which basically admits that some parts should be paid for and there maybe could be an early decision on Keystone, in exchange for two more months of payroll tax cut. Basically, to give it all some breathing room so a better compromise could be reached. It passed handily—89-10—and went to the House, where most leaders (including Speaker Boehner) expected it to also quickly pass.

Here’s some procedure: In order for it to pass by the end of the year, the House would have had to just plain accept the bill as passed by the Senate. Any amendment would send the bill to conference, where it could take weeks to work out: staffs have to be chosen, language needs to be ironed; it’s a sticky process.

A funny thing happened on the way to the forum, though: House Republicans were vehemently against the bill. Citing it’s short-term nature, they shot it down today. But, of course, the way they shot it down is also complicated.

See, no Republican wants to actually vote against a tax cut. So, this is what they did instead. Originally, it would be a standard “motion to concur,” which would pass the Senate bill as written. Instead, they voted on a “motion to reject,” which immediately sends the bill to conference. So, a “yes” vote is effectively a “no” vote. Indeed, they didn’t even vote on the bill, but a motion to reject the bill.

Confused yet? That’s what they’re hoping for.

What happens now is the House calls a number of votes on what they want out of the conference negotiations (if there are any). The House and Senate then appoint members to the conference committee, which would theoretically meet over the holiday recess, during which time members would just go home. However, Senate Majority Leader Harry Reid has suggested that Senate Democrats may not take part in the conference unless the House passes the two-month extension.

Isn’t Congress fun?

Related posts:

1. Why are Republicans against extending the payroll tax cut?
2. A Raw Deal
3. Why is the estate tax cut popular?