Last updated: February 17, 2012 6:25 pm

US Congress passes payroll tax extension

The US Congress on Friday passed a bipartisan $150bn bill to extend the payroll tax cuts and unemployment benefits until the end of the year, in a boost for struggling Americans and President Barack Obama’s re-election campaign alike.

The bill, which will now be sent to Mr Obama to sign into law, also staved off a 27 per cent reduction in fees to doctors who treat elderly patients under the Medicare health insurance system.

In a rare show of cross-party agreement, both Republican and Democratic leaders hailed the passage of the in favour of the bill, which they said offered relief to 160m workers struggling to make ends meet and several million more who are looking for jobs.

“Today is a good day,” said Nancy Pelosi, the Democratic leader in the Republican-controlled House, after the vote. “This represents a victory for the middle class in our country.”

John Boehner, the Republican speaker of the House, said there were “a number of positive aspects to this agreement, including preventing a tax increase on hardworking Americans”.

The bill was passed by a majority of 293-132 in the House of Representatives and 60-36 in the Senate.

Harry Reid, the majority leader of the Senate, said: “In the end, both sides compromised for the good of our country, which is exactly how the American people expect their elected leaders to work.”

But the co-operation did not mean there was no partisanship on display.

Mr Boehner still took aim at Mr Obama. “The only reason the provisions at the core of this measure are even necessary is because the president’s economic policies have failed,” he said in a statement.

Mr Obama, who had been urging Congress to act, had made the tax cut extension a key part of his election year economic agenda, as he tries to convince American voters that the economy is improving under his stewardship.


US economic heatmap

A detailed look at the condition of the US economy state-by-state

Republicans, who have been reluctant both to do anything to help the president and to add to the deficit, dropped their previous insistence that the payroll tax cut be paid for by commensurate spending cuts elsewhere.

This about-face enabled a deal to be forged in the early hours of Thursday.

Under the deal, the 2 percentage point cut in the 6.2 per cent social security payroll tax rate will be extended until the end of 2012. That means an extra $40 a week in the pockets of the average American household, the White House said.

According to the Congressional Budget Office, the agreement will increase the federal deficit by $89bn over the next decade, mostly because of lower tax revenue.

If Republicans had insisted the extension be paid for, that amount would have had to be cut from spending.

Benefits for the long-term unemployed will also be extended for 10 months, at a cost of $30bn, although Republicans chalked up a victory here. The current maximum coverage of 99 weeks will be reduced to 73 weeks in the worst-hit states by the autumn, but in most states it will be scaled back to 63 weeks.

Republicans won the inclusion of a provision that will authorise states to make unemployment beneficiaries submit to drug tests.

The negotiators also agreed to pass the “doc fix”, stopping a 27 per cent reduction in reimbursements to doctors who treat Medicare patients, which carried a $20bn price tag.

The measures will be offset in part by broadcast spectrum auctions, potentially raising $15bn, and requirements that public sector workers pay more into their pension programmes, raising another $15bn. 

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