Senate Democrats will continue to force Republicans to filibuster popular pieces of President Obama’s jobs bill in the days weeks ahead — to bolster their narrative that Republicans would rather see the economy fail than help Obama, or raise taxes by even a fraction of a percent on millionaires and billionaires.
But sometime between now and the end of the year, Dems will either have to interrupt their strategy or risk watching as two key provisions that helped bolster the economy this year lapse, and threaten what’s already expected to be modest economic growth in 2012.
Two months from today, a two percent payroll tax cut for employees, and a measure extending unemployment benefits for people unable to find new jobs are both set to expire. They were part of the deal Obama negotiated with Republican leaders at the end of last year to extend all of the Bush tax cuts for two years. Together, they put nearly $200 billion in consumer pockets, and prevented lapsing unemployment and stimulus bill benefits from harming the economy in 2011.
These temporary benefits are now built into the country’s economic baseline, and many experts warn that if they expire, it will act as “anti-stimulus” at a time when the economy needs more, not less juice.
For these reasons, extending payroll tax cuts and UI benefits is distinct from infrastructure, state aid, and the other provisions of Obama’s jobs bill. If Republicans block the latter, nothing changes and Democrats can take the argument to the public. If Republicans block the former, it will hurt the economy at a time when Democrats are desperate to improve it.
That means fresh tactics.
According to a top Senate Dem aide, Democrats probably won’t put the issue on the floor until later in the year, to increase the public’s sense of urgency about renewing both programs. And they hope, too, that negative press and public hostility about the Republicans’ continued patten of obstruction will make them more willing to deal on must-pass measures.
“The point of holding it back is to soften Republicans up before we get to that vote and get closer to the deadline,” the aide said.
But the fact is, Republicans have mastered the technique of using hard deadlines as leverage over Democrats. And if they follow suit now, Dems will probably have to negotiate new ways to pay for the plans without raising taxes.
“It’ll be tough because 75 percent of the country agrees with [taxing millionaires],” the aide said.
Obama has actually proposed to deepen and broaden the payroll tax holiday — reducing the tax by an additional percent on employees and dropping it three percent for employers. Taken together with extending unemployment benefits, this constitutes significantly more than half the cost of Obama’s jobs bill.
It’s possible the deficit Super Committee will include these policies in recommendations due by November 23 — if members are able to identify significantly more than the $1.2 trillion in deficit reduction required by the debt limit law. A big if.
If the Committee gridlocks or can only agree on a small package, then both measures could easily become tangled in another partisan fight over budget cuts during the holidays.
House GOP sources didn’t comment on this dynamic, or the leverage they may have over Democrats if the fight over the renewing the provisions comes down to the wire. But in September, House GOP leaders issued a memo to Republicans listing both unemployment insurance and payroll tax cuts as potential points of common ground with Democrats. But they added many caveats.
“The President has proposed a number of reforms to the Unemployment Insurance (UI) system, including ‘bridge to work’ programs that allow the unemployed to pursue work-based training and enhanced reemployment assistance programs to target those most likely to be unemployed for an extended period of time,” the memo read. “…While the President links these reforms to a blanket extension of extended (up to 99 weeks) UI benefits and new federal spending, there is no reason we cannot move forward on these areas of agreement.”
The payroll cuts may be even more problematic — if only because they’re expensive, and require siphoning money out of Social Security’s dedicated revenue stream.
“The President has proposed an extension and a significant expansion of the current payroll tax holiday. The President would more than double the amount of the holiday (up from $110 billion this year to $240 billion in 2012, including an expansion of this proposal to some of the employers’ share of these taxes), and would sunset the entire payroll tax holiday effective January 1, 2013,” the memo read.
So while employees would see an additional temporary benefit from this proposal in 2012 (the President would modestly expand the current payroll holiday), they would experience a larger effective tax increase 12 months later when the payroll tax reverted back to its full level. There may be significant unforeseen downsides to large temporary tax cuts immediately followed by large tax increases. Compounding this negative effect is the scheduled increase in all individual tax rates, capital gain and dividend rates, and the elimination/reduction of various individual credits and deductions. In short, we are creating significant new uncertainty in an already uncertain economy. Moreover, the proposal increases general fund transfers to Social Security, something that needs to be carefully considered given the long-term challenges facing that program and the implications of those challenges for taxpayers. Finally, the President proposes to pay for this one-year expanded tax holiday by permanently limiting the ability of those earning more than $200,000 a year to take full advantage of their itemized deductions, including their charitable deductions. With over 40% of charitable deductions being claimed by those impacted by this proposed policy, the practical effect is a tax on and a reduction in charitable giving. This will negatively impact thousands of churches and non-profits. House Republicans are supportive of tax relief for working families and small businesses, but the temporary relief proposed by the President must not cause unforeseen harm to the economy 15 months from now and it shouldn’t be offset with permanent tax increases; and it shouldn’t come at the expense of the nation’s charities. That said, a commitment to honest and fruitful discussions between the White House and Congressional Leaders could lead to potential bipartisan agreement on a plan that avoids these downsides and provides tax relief for the middle class that encourages short- and long-term economic growth and job creation.
Add these to an already long list of things Congress must do before the end of the year — fund the government, pass Super Committee recommendations — and we’re in for a long two months.
