If you have been watching the news, you are probably totally
confused about the argument between Democrats and Republicans in Washington
over extending the payroll tax cuts. Let
me try to clarify the situation. Here is
the truth:
Republicans and
Democrats AGREE that:
- The payroll tax cut should NOT add to the deficit.
Republicans and
Democrats DISAGREE ON the amount of the tax cut.
The payroll tax is normally 6.2%. In 2011, it was reduced to 4.2%. That reduction is set to expire as of January
1st. Republicans want the
payroll tax for 2012 to 4.2% where it is now.
Democrats want a bigger cut in 2012.
They want to lower the 2012 payroll tax to 3.1%.
Republicans and
Democrats DISAGREE ON how to pay for the tax cut.
The Democrats proposed a 3.25% tax on Gross Income over $1
million to pay for the tax cut.
Republicans opposed taxing millionaires arguing that people who make
over $1 million per year are small business “job creators” so that any tax on
them would be a “job killer.” In truth,
most millionaires are NOT small business owners. Less than 1% of small business owners have a
gross income over $1 million per year.
Republicans propose to pay for the tax cut by freezing the
pay of federal employees through 2015 and gradually reducing the federal work
force by 10 percent. In addition, Senate Republican leaders would go after
“millionaires and billionaires,” not by raising their taxes but by making them
ineligible for unemployment compensation and food stamps and increasing their Medicare premiums. Note: Instances of millionaires receiving unemployment compensation and/or food stamps are extremely rare.
Republicans have
added additional poison pill demands that Democrats find unacceptable. Chief among these are the following:
Republicans want to include a provision to speed
construction of the Keystone XL pipeline from oil sands in
Alberta, Canada, to the Gulf Coast, something President Obama said
that he would reject. The pipeline has generated intense opposition from
environmentalists and public officials who claim that it threatens sensitive
lands and underground water supplies along its route. Critics also say that the
heavy oil extracted from sand formations in Canada will add to climate
change and extend American dependence on fossil fuels. Its proponents say
that the project would create thousands of jobs and lessen dependence on oil
from unstable regions like the Middle East. In November 2011, the Obama administration moved to
delay a decision on the pipeline while it studies an alternate route,
effectively pushing any action past the 2012 election. Republicans want to force the administration
to approve the pipeline without competing environmental impact studies required
under existing law. Speculation is that
large Republican donors with financial interests in the pipeline are behind
this. Read more about the pipeline here: http://topics.nytimes.com/top/reference/timestopics/subjects/k/keystone_pipeline/index.html?inline=nyt-classifier
Also, Republicans want
to include a measure passed this year in the House that would roll back the
Environmental Protection Agency’s rules limiting toxic air pollutants from
commercial and industrial boilers, and ban the agency from proposing a new
standard in the near future. Again, larger Republicans donors are behind this.
WHERE MATTERS STAND
NOW
Senate Republicans
and Democrats had been unable to reach agreement on the one year extension. On December 17th, the Senate
passed a bill to extend the payroll tax cut for two months by an overwhelming
bi-partisan vote of 89 to 10 to avoid an increase in the payroll tax as of
January 1st and to allow time
for further negotiation. On
December 20th, House Republicans voted 229 to 193 to “Disagree” with
the Senate and called for establishing a negotiating committee so the two
chambers could resolve their differences.
House Republicans are putting pressure on Democrats in the Senate to
agree to the pipeline and other demands in exchange for extending the tax cuts
for a year. Additionally, some Republicans don't want to extend the tax cuts at all. In fact, Democrats have
accepted Republican demands with regard to the pipeline and earlier agreed to
drop their proposal for a tax on millionaires.
The fact that Democrats in the Senate have been much more willing to
compromise than Republicans makes the Republican House demands completely
unreasonable.
So, why are House
Republicans being unreasonable?
Republicans in the Senate apparently thought they had the approval of
House Speaker John Boehner when it came to the two-month extension and that
House agreement to the extension was assured.
They were surprised when Boehner suddenly announced that House
Republicans would not accept the extension.
Word from Washington is that Tea Party Republicans rebelled and forced
Boehner, who is in danger of losing his position as Speaker, to change his mind
and accommodate their demands. Some Tea
Party Republicans are opposed to any extension of the payroll tax cuts. Speculation is that some of them believe that
if the payroll tax cuts are allowed to expire the economy might slip back into
a recession and that a bad economy would increase their chances of beating
Obama and the Democrats in the next election. Some economist have said they believe a second recession is likely if the payroll tax cuts are not extended.
Democrats in the
Senate have said they will not agree to appoint any negotiators until the House
passes the Senate bill for a two month extension.
WHAT HAPPENS IF NOTHING IS RESOLVED BEFORE JANUARY 1ST?
If nothing changes,
payroll taxes for most Americans will go up January 1st. If that happens:
- Working Americans will be hit with $120 billion TAX INCREASE in 2012.
- 122 million American households will be hit with the TAX INCREASE.
- The average American household will pay $1,426 MORE IN TAXES IN 2012.
- 1 million+ new jobs that could have been created thanks to an extension and expansion of the payroll tax holiday WILL NOT be created.
- 98 Percentage of businesses will see their payroll taxes doubled
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