House Blocks Payroll Tax Bill, Calls for Conference

December 20, 2011

On Dec. 20, the Republican-led House, in a 229-193 procedural vote blocked the Senate’s two-month extension of a payroll tax cut extension and instead called for a House-Senate conference committee to negotiate a compromise between the two chambers on the tax break that is set to expire at the end of this year.

The move is intended to put pressure on Senate Democrats to reconvene and meet with the House over the bill. While House Republicans prefer a one-year extension of the tax cut, Senate Majority Leader Harry Reid (D-Nev.) instead is demanding that the House approve the short-term plan now to avoid a tax hike on workers starting  Jan. 1, 2012 and then negotiate a longer-term deal for the rest of 2012.

Specifically, the House bill calls for a year-long extension of the payroll tax holiday for employees—not the employer’s portion—for one year through 2012 at a 4.2 percent rate. The House bill would extend unemployment insurance benefits until Jan. 2013, but gradually reduces the length of time they can be claimed from 99 weeks to 59 weeks in a two-step process. It pays for those extensions through reforms to these programs and further cuts to discretionary spending.

The Senate bill, which 39 Senate Republicans supported last week in an 89-10 vote, also extends the payroll tax cut and unemployment insurance but only for two months and pays for those extensions by increasing fees mortgage holders would pay to Fannie Mae and Freddie Mac.

Under current law, for 2011 only, employees and the self-employed are provided a two-percentage point reduction in their Social Security payroll (or self-employment) tax rate—decreasing the rate from 6.2 percent to 4.2 percent.

Before the vote in the House, Republican leaders called on the Senate to return and allow a conference meeting to happen—in the next two weeks—to finalize a tax bill. According to House Speaker John Boehner (R-Ohio), House Republicans oppose the Senate bill “because the two-month extension will create more uncertainty for job creators in our country when millions of Americans are out of work.”

Following the vote, Speaker Boehner named eight conferees to the proposed conference committee including: Kevin Brady (Texas), Dave Camp (Mich.), Renee Ellmers (N.C.), Nan Hayworth (N.Y.), Tom Price (Ga.), Tom Reed (N.Y.), Fred Upton (Mich.) and Greg Walden (Ore.). It is unlikely these members will have an opportunity to meet with Senators in conference, because Majority Leader Reid has flatly refused to name Democratic conferees, as has House Minority Leader Nancy Pelosi (D-Calif.).

President Barack Obama called the Senate bill the only “viable way” to prevent a tax increase and said the two-month extension was necessary to give lawmakers more time to work out a full-year extension.