Senate Approves Payroll Tax Extension

The Senate passed legislation to extend a Social Security payroll tax cut and jobless benefits for just two months on Saturday.

President Barack Obama makes a statement on the extension of the payroll tax cut in the James S. Brady Press Briefing Room of the White House, Saturday, Dec. 17, 2011. Photo: David Lienemann/The White House

The Senate on Saturday approved a $1 trillion bill to fund the government and a two-month extension of the payroll tax cut, putting a cap on a contentious political year but setting up a fresh battle for 2012.

The move is considered a partial victory for President Barack Obama, but it sets the stage for another fight in February.

Democrats and Republicans were unable to agree on how to cover the cost of extending payroll tax cuts and long-term unemployment benefits for a full year, as President Barack Obama requested.

So senators settled for a two-month extension that ensures another round of debate early next year – just as the presidential and congressional election campaigns are going into high gear.

The bill had been passed by the House on Friday, and contains a provision demanded by Republicans that pressures the White House into approving the construction of the Keystone pipeline from Canada to Texas, that will promise thousands of jobs.

“It would be inexcusable for Congress not to further extend this middle class tax cut for the rest of the year,” Obama said at the White House shortly after the Senate passed the two-month payroll tax cut extension. The Senate then left town, to return in late January.

Obama is expected to promptly sign into law the $915 billion spending bill that raises funding for the Defense Department but cuts into budgets at the Environmental Protection Agency, education and health departments and other federal activities.

The payroll tax cut bill still must be approved by the House of Representatives. Kevin Smith, a spokesman for House Speaker John Boehner, said he could not comment on the bill’s prospects until leaders consulted with Republican members.

 Now that the Senate has approved (89-10) a two-month extension of payroll tax breaks, unemployment benefits and of current Medicare payments for doctors, the temporary measure goes to the House.

Despite grousing about the $32 billion bill, lawmakers have a big incentive to pass it: a soon as they finish this piece of business, their vacation starts.

However, some are opposed to the two month extension:

“It makes no sense for two months to come back and fight the same fight we’ve been fighting for how long now,” said Senator Joe Manchin, a West Virginia Democrat who opposed the extension, Bloomberg reported. “I feel very strongly that we need to stay here and fix things.”

The Congressional vote also benefits economists, who don’t have to adjust their GDP predictions for 2012 (yet). This week, the final reading of growth in the third quarter is expected to match the last estimate of 2 percent.

GDP probably picked up in the fourth quarter – in excess of 3 percent, boosted by an increase in personal income and spending, which are both expected to show marginal improvement.

It was such a difficult year that Senate Majority Leader Harry Reid tried to put some historical perspective on 2011 and remind Americans that things could have been worse.

Reid recounted the 1856 beating in the Senate chamber of a Massachusetts senator by a member of the House of Representatives. “The times that we are going through here are not unusual for the United States Senate,” Reid said, adding, “In fact they’re very peaceful and calm compared to some times.”

Two administration officials, who briefed reporters on condition of anonymity, said yesterday that the language in the two-month extension doesn’t force Obama to expedite the permit in order to extend the tax cuts and thus he is not backtracking on his earlier statements.

They also offered a different analysis of the tax cut extension than Republicans. One of the officials said that once Republicans agreed to extend the tax cuts into 2012, it will make it especially difficult for them to let the tax cut expire months before the election, especially given the support for the extension among leading Republican presidential candidates.

The other official said Democrats managed to stave off demands from freshman House Republicans who were elected in 2010 with promises to repeal the president’s health-care overhaul and Wall Street regulations. [via Reuters, CBS, Global Post and Bloomberg]

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