–President Obama Says Senate Will Vote Next Week On Extension
–But Senate Bill Likely To Include Unacceptable Surtax On Wealthy
–House Speaker Says He ‘Stands Ready’ To Discuss Payroll Extension

By John Shaw

WASHINGTON (MNI) – Apparently not worn down by months of partisan
wrangling over various jobs measures or the ignominious failure of
Congress’ deficit panel, U.S. lawmakers appear poised to return to
Washington next week to fight over the extension of the payroll tax cut
that is scheduled to expire at the end of 2011.

Analysts expect the Senate debate next week to be just the opening
salvo in a battle regarding the payroll tax cut extension and the fate
of other expiring provisions that will extend until nearly Christmas.

Foreshadowing the coming fight, President Obama said Tuesday that
he expects the Senate to vote next week on a version of the payroll tax
extension which is paid for by a surtax on millionaires, the offset
which has triggered united Republican opposition to other pieces of his
jobs agenda.

“Congress has a very simple choice next week. Do you want to cut
taxes for the middle class and those who are trying to get into the
middle class? Or do want to protect massive tax breaks for millionaires
and billionaires,” Obama asked rhetorically.

“If Congress refuses to act, the middle-class families are going to
get hit with a tax increase at the worst possible time. It would be bad
for the economy. It would be bad for employment,” he said.

House Speaker John Boehner offered a seemingly more conciliatory
statement Tuesday about the payroll tax extension.

“We told the president in September that we stand ready to have an
honest and fruitful discussion with him regarding the payroll tax
extension and that invitations stands,” Boehner said in a statement.

Last week, Boehner signaled that any payroll tax extension or the
renewal of other safety net measures will have to be offset with
spending cuts.

“If there is going to be spending pushed by some around here as we
close the year, it’s going to have to be done in a fiscally sound
manner, period,” Boehner said last Thursday.

Boehner seemed to be referring to efforts by the administration and
some in Congress to renew the payroll tax cut, extend unemployment
insurance benefits, prevent scheduled cuts in Medicare payments to
doctors and adjust the alternative minimum tax.

Senate Majority Leader Harry Reid said Monday, in the wake of the
failure of the deficit reduction committee, that extending the payroll
tax is critical for the American economy.

“Economists have estimated that failing to extend the payroll tax
cuts for the middle class and provide support to Americans who continue
to look for jobs in this tough economy could plunge us back into
recession,” Reid said.

House Minority Leader Nancy Pelosi and her leadership team sent
Boehner a letter Tuesday calling for a House vote on the payroll tax
extension.

Analysts say that Congress is likely to eventually renew the
payroll tax cut by the end of the year, but it will almost certainly not
be done in the form that will come to the Senate floor next week.

A month of tough negotiations between Congress and the White House
seem inevitable.

Republicans are likely to link their support for the payroll tax
extension and possibly the extension of unemployment benefits to other
issues, possibly even a restructuring of the across-the-board spending
cuts triggered by the failure of the deficit panel this week.

Last year, Congress and the White House agreed to a tax package
that included a one year plan to reduce the employee-paid portion of the
Social Security tax from 6.2% of wages to 4.2%. This cost $112 billion
for one year.

Several months ago, Obama proposed extending and even expanding
this provision. The president urged Congress to enlarge the payroll tax
cut so that employees pay only 3.1% in taxes on wages in 2012. He also
proposed extending this tax cut to employers. His plan would cut their
payroll taxes in half for the first $5 million paid in wages and
eliminate the tax for new hires or wage increases up to $50 million.

This expanded payroll tax cut package would cost $240 billion for
one year. Obama also proposed an extension of unemployment benefits for
the long-term unemployed, costing nearly $50 billion.

These two elements — the payroll tax cut and the extension of
unemployment benefits — would cost about $290 billion, well over half
of Obama’s total $447 billion jobs proposal.

The Senate rejected that package this fall, largely over a revised
funding mechanism that would impose a surtax on the wealthy to pay for
the plan.

Senate Minority Leader Mitch McConnell charged that Obama’s $447
billion jobs package was little more than a political ploy.

Several weeks ago, Senate Democrats tried and failed to pass a
“piece” of the larger plan — a $35 billion package to assist state and
local governments to hire and retrain teachers and first responders. The
package would have been paid for by a surtax on those making more than
$1 million.

Senate Democrats also failed to pass a $60 billion package for
transportation projects and a new national infrastructure bank which
would also have been paid for by a surtax on those making more than $1
million.

The House and Senate did pass this month a narrow bill that would
repeal a law requiring federal, state and local governments to withhold
3% of most payments to contractors. The withholding law was passed in
2006 and was set to take effect in 2013.

The withholding bill also included a provision that would provide
tax credits to companies that hire veterans.

** Market News International Washington Bureau: (202) 371-2121 **

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