Efforts in Congress to extend a payroll tax holiday for 160 million workers beyond December 31 ended in a stalemate on December 20. The result will be that workers will get on average $40 less in their biweekly paychecks (or about $20 less a week) starting with the first 2012 pay period.
Who should be held responsible? Measured against what middle-class workers need in a struggling economy, the answer is clear: Republicans, particularly those in the House.
It's important to remember how we got to this point. It began with the tax-cut compromise President Obama forged with Congress at the end of 2010, in which Obama and congressional Democrats agreed to back off allowing the 2001 and 2003 Bush tax cuts to end for people earning more than $200,000 a year, a concession that earned enough votes in support of a continuation of extended unemployment benefits for the long-term jobless and a one-year, 2 percentage-point reduction in the payroll tax rate paid by workers in order to fund Social Security.
The payroll tax reduction was done in lieu of continuing the Making Work Pay tax credit that was a part of the Obama administration's 2009 economic recovery bill, which some economists have concluded would have been a better way to target aid to workers without putting Social Security funding at risk. The New York Times reported in September, "[Obama] wanted to extend the “Making Work Pay” tax credit for low- and middle-income households, part of his original two-year stimulus package for 2009 and 2010. But Republicans, newly empowered by their big gains in the 2010 midterm elections, blocked him. Mr. Obama countered with the broad-based and more costly payroll tax cut."
The request by the administration to continue (and initially make more generous) the payroll tax break and the extended unemployment benefits was among a series of job-creation proposals submitted by the administration that were systematically voted down by Republicans in the House and filibustered in the Senate. Continuing the payroll tax break was also opposed by many Republicans, but as the possibility that the sudden decrease in worker paychecks come January might unleash voter fury, Republican leaders changed their tack and began demanding concessions they knew would be unpalatable to many Democrats. Among them was an edict that the Obama administration make an up-or-down decision on the controversial Keystone XL oil pipeline project within 60 days of bill enactment, after President Obama announced that it would take through the end of 2012 to assess the long-term environmental impact. Republicans also added to the payroll tax break and unemployment benefit extension language restricting the ability of the Environmental Protection Agency to regulate emissions from coal-fired power plants.
But critical to the stalemate was the Republicans' insistence that the aid to workers and the jobless be "paid for" by means other than a modest increase in taxes on people earning more than $1 million. The insistence that an economic stimulus should be "paid for" by cuts in federal spending that would have slowed the economy and cost jobs, such as extending through 2013 a pay freeze on federal workers, was wrong. But a modest surtax on people earning more than $1 million was the best way to address concerns that the bill would increase the deficit without having a negative effect on the middle-class economy.
Brian Beutler at Talking Points Memo detailed what led to Congress' inability to move forward:
"[Congress] could’ve agreed to support the measures without paying for them, or to pay for them with war savings, as some Dems suggested, or with a mix of pay-fors that included a balanced mix of tax revenue and spending cuts. Likewise they could’ve agreed to pass the measures “cleanly” — without attaching unrelated policy riders to the legislation.
"But they did neither. And it created a huge problem. Together, these items, plus a one-year patch to the Medicare physician reimbursement formula, cost a couple hundred billion dollars over the course of a year, and offsetting them via cuts to an already constrained budget is hard. The House-passed a one year measure included policy rider Dems abhorred, plus premium hikes on middle class Medicare beneficiaries and other controversial pay-fors. In the end, depending upon whom you ask, Senate Dem and GOP negotiators got within $60 and $90 billion of the total cost — but they couldn’t bridge the gap. Republicans refused to accept raising taxes to cover the rest, and so Harry Reid and Mitch McConnell settled upon a relatively clean two-month extension."
That two-month extension won rare, broad, bipartisan support, along with an agreement by the Obama administration and Senate Democrats to accept the Keystone XL language they had initially opposed. But, instead of accepting that as the basis for additional compromise that could have been reached after the Christmas holidays, House Republicans instead chose brinkmanship.
The House Republican resolution calling for an immediate conference to negotiate differences between the House one-year bill and the Senate two-month bill was denounced by Senate leaders in both parties as unrealistic, given that the two chambers had been unable to come to terms in the previous three months. And even The Wall Street Journal editorial page, normally an ardent cheerleader for the ideological rigidity of the most conservative House Republicans, was scathing in its critique of how House Republicans "thoroughly botched the politics" of the tax-relief issue. "At this stage, Republicans would do best to cut their losses and find a way to extend the payroll holiday quickly," the paper's editors wrote.
Unless there is a last-minute holiday miracle, workers will find that a political lump of coal has burned a hole in their paychecks, and an economy already staggering in its efforts to recover will have a much harder time getting on its feet. It is true that leaders in both parties were holding firm on core principles, but it was the Republican House members in particular who engaged in a strategy of poisoning approval of a payroll tax extension while defending at all costs the incomes of the 1 percent—even if that cost is reducing the incomes of most of the remaining 99 percent. For that, the Republican House members deserve to be known as the grinches who stole Christmas.