Last updated: December 9, 2011 11:45 pm

No sign of resolution to US payroll tax standoff

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Republicans and Democrats in Congress are drifting apart on proposals for an extension of payroll tax cuts and jobless benefits sought by the White House, with no clear path emerging to resolve the latest standoff over US fiscal policy.

Republicans in the House of Representatives made new demands, including swifter approval of the Keystone XL Pipeline linking Canada with the Gulf of Mexico and a roll-back in funding for some provisions of the 2010 health reform law, in what appears to have been a successful effort to unite their party into supporting the extension.

“If the president is serious about his commitment to get the economy going and help small businesses create jobs in this country, he’ll work with us and sign this bill,“ Eric Cantor, the House majority leader, said on Friday.

But Barack Obama and many congressional Democrats are balking at the Republican bill, which is due for a vote in the House next week, dismissing it as a political stunt that has no chance of advancing. As well as extending current payroll tax relief for a year, the Republican plan also extends emergency unemployment benefits, albeit scaling them back. But the cost of the measures are mostly covered by spending cuts, including curbs on federal worker pay, in contrast to Democratic proposals to impose a surtax on incomes above $1m.

Deepening the rift, Mr Obama has already said he could not support any deal linking the payroll tax cut with the pipeline, on the grounds that such extraneous measures should not be part of the negotiation. “[Republicans] are choosing to ... introduce ideological issues into what should be a simple debate about cutting taxes for the middle class,” said Jay Carney, the White House press secretary. There were, however, some areas of potential common ground to explore, such as the Republican plan to raise new revenue through higher fees to be imposed by Fannie Mae and Freddie Mac on mortgage lenders, and new wireless spectrum auctions.

Lawmakers were hoping to strike a deal on payroll tax cuts by December 16, which is also the deadline for an agreement to keep funding the government and avoid a partial shutdown, before heading back to their districts for the holidays. If no solution is found on payroll taxes, all American workers will see their contributions to the Social Security retirement fund, into which the money flows, increase from 4.2 to 6.2 per cent beginning in January, which could deal a blow to consumption in 2012.

To prevent that from happening amid escalating discord on Capitol Hill, the White House may have to deepen its involvement in the talks. It could reprise a version of the summits with congressional leaders that led to the April budget deal that first averted a government shutdown, and the last-ditch August agreement to lift the US borrowing limit and avoid a default on the debt.

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