Wednesday, December 21, 2011

The truth about the payroll tax cut disagreement

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 be extended another full year.
  • 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:

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.


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. 


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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