Republicans' Deceptive Payroll Tax Compromise

Republicans finally came to their senses yesterday and realized they were waging a losing battle with their opposition to a payroll tax extension. The two-month extension Congress passed in December was set to expire by the end of this month, and Republicans were adamant that any further extension be paired with equal spending cuts. Democrats balked, instead suggesting a surtax on millionaires that the Republicans would never accept, and another last minute legislative showdown appeared inevitable. Then out of nowhere yesterday afternoon Congressional Republicans announced that they would drop their resistance:

“Because the president and Senate Democratic leaders have not allowed their conferees to support a responsible bipartisan agreement, today House Republicans will introduce a backup plan that would simply extend the payroll tax holiday for the remainder of the year while the conference negotiations continue regarding offsets, unemployment insurance, and the ‘doc fix,’” said GOP leaders in an official statement Monday afternoon.

The last impasse on the tax extension left Republicans limping out of Washington for the Christmas recess. The payroll tax cut—which maintains the current 4.2 percent rate that, for a family earning $50,000 a year, amount to about $80 extra per month than the standard 6.2 percent rate—is a widely popular measure and Republicans faced public scrutiny as their obstinacy risked raising taxes on 160 million people, all in the name of political brinkmanship. By slipping this announcement out far in advance of the deadline on the same day the president released the 2013 budget, Republicans hoped to avoid a repeat of their previous public relations debacle.

Seems like an unabashed win for the Democrats, right? It's certainly reassuring that the payroll tax extension, a form of stimulus bolstering the still shaky economy, will remain in place through the end of the year. Except unlike the December concession, this change of heart only covers the politically popular payroll tax. Excluded is an extension of unemployment benefits for the long-term jobless and the so-called Doc Fix, which stalls a drastic drop in the fees paid to Medicare physicians.

I imagine Republicans will also find common ground on the latter half—they wouldn't want to position themselves against your grandma's doctor during an election year—but the agreement seems designed as a ploy to put an end to the increased unemployment benefits that Republicans have fought against throughout Obama's presidency. While the payroll tax cut helps keep the economy afloat, the unemployment benefits are the more simulative part of the equation, possibly dropping GDP by 0.3 percent if no extension is passed. But since those benefits aren't dolled out to as wide a base as the payroll tax, there is less of a public groundswell whenever Republicans hold the extension hostage.  

If Democrats buy into the Republicans' attempts to separate the various measures, it's unlikely that any offsets would be enough to convince Republicans to support extending unemployment. The party is secretly crossing their fingers, hoping the economy doesn't improve before Obama is on the ballot this fall. Any form of stimulus that lacks widespread appeal would be a nonstarter.

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