Payroll tax vote exposes divisions within each party

In a rush to recess, Congress on Friday extended a payroll tax holiday and other expiring measures through the end of the year in rare bipartisan votes that nevertheless exposed internal divisions in both parties.

In addition to averting a 2 percent hike in payroll taxes that would have been effective March 1, the bill also blocked a 27 percent hike in reimbursements to physicians treating Medicare patients and extended jobless benefits for some 13 million unemployed Americans.

Despite broad support for all three measures, the path to a final deal was difficult and protracted. Moreover, the votes in both the House and Senate signaled rifts within party ranks on core principles.

On the House side, 91 Republicans broke with their own leadership to oppose extending a $100 billion payroll tax cut without spending cuts to pay for it. The bill passed 293 to 132, with the critical support of 147 Democrats, one more than the number of Republicans who voted in favor.

The Senate passed the measure with the minimum 60 votes required to block a filibuster. This close vote in the Senate came as somewhat of a surprise, since a two-month extension of this package had passed the Senate last December on a strong, bipartisan vote, 89 to 10.

At the time, the sticking point had been the House, where GOP lawmakers, in the majority, tried to hold out for a full year extension, paid for with spending cuts. Up against a Dec. 31 deadline, Speaker John Boehner (R) of Ohio informed his caucus that they had no option but to back down to avoid a payroll tax hike that was sure to hurt GOP prospects in November elections.

Had Congress failed to act, some 160 million Americans stood to lose a tax break worth about $1,000 a year.

“This shows that even in an election year, this divided Congress can still accomplish something to help boost the economy,” Sen. Charles Schumer (D) of New York, who is charged with messaging for Senate Democrats, said in a statement Friday.

When Congress took up the issue again in 2012, House Republicans again tried to hold out for spending cuts to fully offset the $160 billion cost of the package. But facing a new expiration deadline on Feb. 29, House GOP leaders gave up on Monday and agreed to extend the payroll tax without spending cuts to pay for it.

But they did win significant concessions from Democrats in negotiations to extend unemployment insurance and the so-called “doc fix.”  These include:

• Cutting $5 billion from a program from President Obama’s signature health-care reform, targeted to cut smoking and obesity. The savings help fund payment rates for Medicare.

• Lowering the scope of federal jobless benefits to 73 weeks, down from a maximum of 99 weeks, to be paid for in part by requiring new federal hires to pay more into their pensions.

• New requirements for workers seeking unemployment benefits, including a measure that allows states to require drug tests of recipients who have lost a job because they failed or refused a drug test.

Republicans had also urged requiring that all recipients who have yet to graduate from high school be required to seek alternative certification, but Democrats blocked that measure as adding an unnecessary burden to jobless workers.

While supporting extending these provisions, many GOP senators objected to being excluded from negotiations that involved mainly majority House Republicans and Senate Democrats. On Friday, 30 Senate Republicans voted against the bill, nearly derailing the measure.

Some Democrats also opposed the final deal on principle, because it weakened Social Security, an iconic program for Democrats, or because it tapped newly hired federal workers to offset the costs of extending unemployment insurance. Maryland Sens. Barbara Mikulski (D) and Benjamin Cardin (D), representing thousands of federal workers, broke with leadership to oppose the bill over this issue.

The Obama administration has twice tapped payroll tax breaks as a stimulus to jumpstart the economy. In March 2010, Congress approved a temporary payroll tax exemption for employers who hired a jobless worker. In December 2010, Congress passed a one-year payroll tax holiday for employees.

Sen. Tom Harkin (D) of Iowa, in a floor speech on the eve of Friday’s vote, dubbed this move “the beginning of the end of the sanctity of Social Security,” because it disrupted a dedicated funding stream for Social Security.

Many of the naysayers on this bill, on both sides of the aisle, objected to adding $100 billion to the federal deficit, already projected to exceed $1 trillion.

“Bipartisan agreement on the payroll tax holiday is welcome news for workers and the still struggling economy,” said Steve Bell, senior director of the Bipartisan Policy Center’s Economic Policy Project.

“However, failure to offset the costs of the tax extension will raise future deficits and move us closer to a potential breach of the $16.4 trillion debt limit,” he added, in a statement.