Payroll Tax Deal

Congressional leaders apparently have a  deal to extend the payroll tax cut. Two Representatives in the “closed door” committee negotiations, Reps. Renee Ellmers (R-NC) and Fred Upton (R-MI), seemed upbeat and optimistic about the agreement. Reportedly, a vote will come before the full House on Friday.

Under the compromise, the payroll tax cuts would also be extended for the rest of 2012. If not approved, the cuts are scheduled to end in just 14 days.

Unemployment benefits would be extended though for how long is anyone’s guess. The extension will most likely land somewhere between a maximum of 89 and 99 weeks; Republicans are still pushing for mandatory drug testing as a requirement for benefits. The deal will also include the “doc fix” to prevent fee cuts to Medicare doctors. Extensions for unemployment benefits and the “doc fix” were included as part of  the December fix.

Congress has agreed something. But the key sticking point – how will it be paid for? – is still a problem. That part of the compromise has apparently not been worked out.

As of Monday, Republicans in the House decided that they could live without a requirement that the payroll tax cuts be paid for in the budget. This has been a huge point of contention earlier when Republicans insisted (and rightfully so) that the cuts needed to be offset by spending cuts or tax increases. But since neither the Republicans nor the Democrats could agree on how to make cuts or raise revenue, they just dropped it. *shakes head* Any last vestiges of fiscal conservatism have just trickled down the drain with this one.

Of course, it’s all politics. Taxpayers want to pay lower taxes, hence the payroll tax cuts. Taxpayers don’t want to pay more taxes, so increases to raise revenue are out of the question. And nobody can manage cuts in this economic climate because someone is going to squawk. And you can’t have squawking this close to a presidential election.

So it feels like Congress is going to do what it normally does: damn the torpedoes, full speed ahead, with zero thought to the long term consequences.

But the unemployment benefits and the “doc fix” will likely not escape without additional compromise. If the Democrats want the Republicans to give on the drug testing, they’re going to have to throw the Republicans a bone on spending cuts. I can’t see it happening (the cuts) so I suspect we’re going to get some kind of limited drug testing. Politically, the “doc fix” is the least explosive and probably the easiest to tie to repayment provisions.

I haven’t been thrilled with all of the political maneuverings behind closed doors. It feels very “super committee” to me. But if we get a workable deal out of it, I guess that’s what matters most.

But Congress, in the middle of tax season, can you do employers and the IRS a favor? Figure out this nonsense soon? Like now? We don’t need the additional stress of waiting while the IRS revises the payroll tax forms and instructions. Again.