2012 Payroll Tax Cut Holiday: Democrats vs. Republicans

It’s official, as forecast last July 1st, there is bipartisan support for extending the payroll tax holiday through 2012.

Its a slam dunk. It’ll happen. Guaranteed!

If its pretty much a slam dunk to be extended through 2012 then why are Democrats and Republicans still at loggerheads?

Last Friday, 12/9/2011, House Republicans finally unveiled their own payroll tax cut proposal, passed it on Tuesday and Senate Majority Leader Harry Reid then instantly declared it DOA in the Senate.

Its deja vu all over again.

The extension has become political Kabuki Theater, filled with rampant misinformation and partisan grandstanding between Republicans and Democrats.

The best way to see through the charged rhetoric to the truth is to review the actual plans submitted in the Congress.

The Plans

So far, Democrats have submitted two plans and Republicans have submitted two plans.

There has been a lot of confusing rumors flying around back and forth from politicians reported in the media about this and that. But when the dust clears the only plans that matter are bills submitted in the Congress.

Here are all the current payroll tax cut proposals before Congress from newest to oldest…

Republican House Plan:
Middle Class Tax Relief and Job Creation Act of 2011 (H.R. 3630)
– Rep. Dave Camp(R-MI), 12/9/2011

Democratic Senate Plan #2:
Middle Class Tax Cut Act of 2011 (S.1944)
– Sen. Robert Casey, Jr.(D-PA), 12/5/2011

Republican Senate Plan:
Temporary Tax Holiday and Government Reduction Act (S.1931)
– Sen. Dean Heller(R-NV), 11/30/2011

Democratic Senate Plan #1:
Middle Class Tax Cut Act of 2011 (S.1917)
– Sen. Robert Casey, Jr.(D-PA), 11/28/2011

Yup, the two Senate Democratic plans are from the same guy – Senator Robert Casey, Jr.

Casey’s plan 1, S.1917, is the verbatim proposal made by President Obama way back on June 30th, 2011. Casey’s plan 2, S.1944, of the same name replaces President Obama’s plan.

Senator Heller submitted his plan a couple days after Casey’s plan 1.

At present, all 4 plans have been considered and rejected.

Why Can’t Democrats and Republicans Agree?

The main reasons Democrats and Republicans can’t agree are:

  • The size of the payroll tax holiday
  • How it will be paid for
  • Incidental inclusions

Democrats originally wanted to substantially increase the payroll tax cut above this year’s 2011 amount.

President Obama proposed cutting payroll taxes in half for both employees and employers which makes the payroll tax cut 3 times bigger and 3 times more expensive than this year’s holiday.

Republicans want to extend the current 2011 payroll tax holiday, as is, through 2012.

Democrats want to pay for the payroll tax holiday with a permanent millionaire’s tax increase. Republicans want to pay for it with spending cuts of one sort or another without raising taxes.

President Obama and Democrats originally wanted to increase the payroll tax cut as a “clean” bill without any riders. Republicans have added riders to their bills, like the Keystone Pipeline project, that Democrats outright reject.

Fundamentally, Republicans are against extending the payroll tax holiday. They don’t want to further weaken Social Security by cutting revenues to a crucial program that already can no longer pay for itself. So Republican leaders have added the riders to their bill to make it more palatable to the rank and file.

President Obama’s Payroll Tax Plan

Casey’s plan 1, S.1917, is President Obama’s original “clean” plan, verbatim, as originally proposed last June. The grandiose and VERY expensive proposed plan cuts payroll taxes in half for both individuals and employers for 2012.

It never even had a CBO cost analysis performed for it, yet was first to be considered and first to be rejected in the Senate.

Not surprisingly it died on the vine.

President Obama’s payroll tax holiday for 2012 went down in flames and is now discarded like so much political flotsam.

The Republican Senate Plan

The Heller plan, S.1931, was then considered and voted down – TWICE – in the Senate. It got little support even from Senate Republicans. It got none from Democrats.

No surprise there. Democrats didn’t like it because it didn’t make the payroll tax cut bigger, extended a freeze on federal pay, put limits on new federal hiring and reduced levels of discretionary spending. Republicans didn’t like it because it raised Medicare premiums for those making $750K or more.

To be sure, it had a couple things both Republicans and Democrats liked, just not enough to be taken seriously.

The Second “Middle Class Tax Cut Act of 2011” Plan

Casey Plan 2, S.1944, replaced the President’s original proposal.

It has these primary differences from the President’s plan:

  • It jettisons the employer half of the tax cut holiday extension
  • It replaces the permanent 3.25% tax hike for millionaires with a 1.9% tax increase for millionaires
  • The tax hike for millionaires is only temporary, from 2012 to 2022; not permanent
  • Imposes a 50% tax on unemployment checks sent to millionaires
  • Denies SNAP(food stamps) to millionaires
  • Increase fees paid to federal mortgage lenders Fannie Mae and Freddie Mac

This bill attempts to compromise with Republicans in these ways:

  • It REDUCES the size and cost of the payroll tax holiday
  • It REPLACES a permanent tax hike with a temporary tax hike
  • It LIMITS the tax increase for small businesses earning less than $5M/yr
  • It INCLUDES the SNAP provision originally proposed in the Republican Heller plan

Btw, anyone remember that Fannie and Freddie are the Wall Street enablers which caused the mortgage housing collapse that brought down the economy?

Wall Street banks have long since paid off their bailouts with interest yet Freddie and Fannie still owe $100s of billions of dollars to taxpayers that will never be recovered.

Yet, Fannie and Freddie rate a fee increase in this bill which home buyers will ultimately have to pay.

This bill was rejected in a nearly 100% “party line” vote 50-48. Every Republican, but one, voted against it. Every Democrat, but one, voted for it.

The Republican House Plan

Ironically, the payroll tax holiday extension included in this gigantic 369 page bill, H.R. 3630, is containing in a single line that makes one word plural and adds two little words to the tax code,”and 2012″.

Here is that line:

Subsection (c) of section 601 of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 is amended by striking ‘‘calendar year 2011’’ and inserting ‘‘calendar years 2011 and 2012’’.

This bill is far more comprehensive than the other three bills.

The bill includes these things:

  • Extends payroll tax holiday, as is, through 2012
  • Extends and reforms temporary unemployment benefits
  • Proposes spending cuts to offset costs for both
  • Job creation measures, including Keystone Pipeline approval
  • Extent certain Medicare benefits for 2 more years
  • Extend certain Social Security benefits 2 more years
  • Broadband auction to expand public wireless service and cut costs
  • Includes “document fix” reforms for cost savings
  • EPA regulatory relief

There is a lot in this bill… to much to absorb and digest for its purpose. No wonder Reid rejected it already in the Senate.

It does have some good features,though.

It keeps the payroll tax cut cost lower than the Democratic proposals. It includes extension of unemployment benefits. It includes extensions of certain Social Security and Medicare benefits. It uses cost saving measures to pay for them.

It includes cost cutting fixes and reforms to remove government waste in various programs. It includes several job creation measures, the most notable is its inclusion of approval for the Keystone Pipeline project.

Conclusions

There you have it. All 4 measures yet considered have been rejected in mostly partisan voting.

The Democratic plans make payroll tax cuts that hurt Social Security more than Republican plans. Republicans pay for their plans with cost cutting and Democrats with a millionaire’s tax. Republicans include job creation and the Democrats don’t. The Democratic plans are more streamlined. The Republican plans are bloated.

Though they still seem far apart, especially in ideological terms, they are inching closer together at an accelerated pace.

The final outcome will be far simpler than the Republican House plan and won’t depend on a millionaire’s tax to pay for it all like the Democratic Senate plan.

But all posturing aside… Its a slam dunk!… It’ll happen!… Guaranteed!

The reason… election year politics. Agreement will probably come later today. The latest rumor is that Democrats are dropping the millionaire tax proposal.

What Congress still hasn’t figured out, though, is that every time they delay agreement on important measures to the last minute it hurts them, and the nation, as a whole.

—————————————————————————————————————————————————————

Addendum:

Other related Social Security/payroll tax holiday articles can be found here:

Payroll Tax Cut: Victory for Obama?
-Azleader, Inform The Pundits!, 12/27/2011

Payroll Tax Cut: How Many Jobs?
-Azleader, Inform The Pundits!, 12/21/2011

2-Month Payroll Tax Cut Extension – Huh? What??
-Azleader, Inform The Pundits!, 12/19/2011

Payroll Taxes: Good News/Bad News
-Azleader, Inform The Pundits!, 12/9/2011

Payroll Taxes… Change of Venue
-Azleader, Inform The Pundits!, 11/22/2011

The Systemic Demise of Social Security
-Azleader, Inform The Pundits!, 11/15/2011

President Obama’s Jobs Proposals
-Azleader, Inform The Pundits!, 9/1/2011

Don’t Extend the Payroll Tax Holiday
-Azleader, Inform The Pundits!, 8/21/2011

Extend the Payroll Tax Cut Holiday… into 2012?
-Azleader, Inform The Pundits!, 7/1/2011

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About azleader

Learning to see life more clearly... one image at a time!

Posted on Dec 15, 2011, in Democratic Party, news, Payroll tax, payroll tax cut, Politics, Taxes and tagged , , . Bookmark the permalink. 10 Comments.

  1. Harry Reid sounds like a fuzzy stick, this monotone liberal ass kisser is a enema waiting to happen. Harry and Gang are out to make political propaganda and he sucks at it. Harry has been an elected official for quite awhile and along with Barrney Frank and Chris Dodd are a big part of why the housing bubble burst. (Freddy and Fanny Directly involved)

  2. Harry Reid seems like a party line kinda guy. That isn’t necessarily bad unless it totally replaces original, creative thinking; which might be true in his case.

    You are right that Freddie and Fannie are the direct cause of the housing bubble. Most people don’t know that.

    They were Wall Street enablers. Wall street, though, made it much worse than it otherwise would have been.

    It’s good that some Fannie/Freddie corporate executives are finally being called to account. But in typical government fashion, they are scapegoating the wrong guys.

    You are right that Barney Frank is up to his earlobes in Fannie and Freddie; but not Reid. It is good Frank is getting out of Congress. However, Frank is one of those guys that should be called to account for his part in bringing down the economy.

    I recommend a book about the subject by Pulitzer Prize winner Gretchen Morgenson called “Reckless Endangerment”. She names names and explains in great detail exactly how they are involved. Frank rates specialized attention.

  3. DARYLFAZEKAS

    Here is how to end the economic crisis: a CONSTRUCTION LOAN TAX HOLIDAY. How it works: Any bank or private fund that lends money to build residential, commercial or industrial buildings get TWO YEARS OF TAX FREE INCOME.
    This will attract huge amounts of money from those who want 5% tax free income. In turn, architects builders and home furnishing retailers will get back in business. The Republican Candidates and Congress need to push this to get elected and defeat Obama. This is a real FREE STIMULUS, since there are currently few construction loans now.
    PLEASE ASK guests you interview if they think this will work.

    Daryl Fazekas
    Architect

    15621 Loma Vista Ave.
    Los Gatos, CA 95032
    408 395 9400

    • An interesting idea. I kinda like it.

      However, it has this fatal flaw…

      Builders have a demand problem; NOT a supply problem! People can’t afford to buy residential homes and we are still suffering the effects of the home mortgage collapse.

      It might work for commercial/industrial construction because those guys are sitting on a bucket load of cash waiting to find out what their tax liability is finally gonna be.

      If people can’t afford to buy homes, it is counterproductive to build new ones if there isn’t a market to sell them, no matter how attractive the tax considerations are for banks and builders.

      If new construction sits empty the supply side still loses money!

      IMHO, your idea might stimulate demand in the business sector but doesn’t stand a chance in residential construction until wages and jobs come back.

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