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Financial Planning > Tax Planning

House Rejection of Senate Bill Leaves Payroll Tax Cut Uncertain

By Melanie Waddell

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The House of Representatives rejected, 229-193, on Tuesday the Senate bill to extend the payroll tax cut for two months as well as unemployment benefits. If Congress can’t break the logjam, 160 million Americans will pay higher taxes next year.

Senate Majority Leader Harry Reid, D-Nev., said after the vote that, “It is unconscionable that Speaker [John] Boehner is blocking a bipartisan compromise.”

Reid shot off a letter to Boehner on Wednesday urging him to reconvene the House and approve the Senate’s bipartisan compromise “as soon as possible” to avoid a middle-class tax increase on January 1.

“Once the House of Representatives acts on this immediate extension, we will be able to sit down and complete negotiations on a longer extension,” Reid wrote. “But because we have a responsibility to assure middle-class families that their taxes will not go up while we work out our differences, we must pass this immediate extension first.”

President Barack Obama, in an impromptu news conference after the House vote on Tuesday, said that the Senate compromise that was supported by both parties in the Senate as well as the White House “is the only viable way to prevent a tax hike.”

A White House web page explains that as it stands now, workers contribute 4.2% of their wages to Social Security. “The normal rate is 6.2%, and if the House of Representatives doesn’t take action, that’s what we’ll pay in 2012,” the web page says. That would mean that a typical American family making $50,000 a year pays $1,000 in extra taxes next year.

But Boehner, R-Ohio, and conservative Republicans in the House remained defiant, with Boehner sending a letter to Obama asking the president “to call on the Senate to return to appoint negotiators so that we can provide the American people the economic certainty they need.”

Sen. Chuck Schumer, D-N.Y., said on a conference call with reporters on Wednesday that Boehner’s decision to allow the House leadership to go home before allowing a “clean” up or down vote on the Senate bill is “backfiring politically.” The “bottom line,” Schumer said, is that ”Republicans and Democrats already negotiated a deal; there’s no time to negotiate this even more.”

Schumer also noted Sen. Bob Corker’s, R-Tenn., reversal over the last 24 hours in opposing the Senate bill. In an interview on CNBC, Corker said that, “Both Republicans and Democrats have agreed that this [payroll tax cut extension] is going to happen and probably the best thing to happen now is just to get it over with–one more policy blunder–but just get it over with and move on, because now it’s been framed as a tax increase, which it’s not,” he said.

House Majority Leader Eric Cantor, R-Va., said in an interview on MSNBC on Tuesday that “We believe there is common ground on this issue and we can provide some certainty in a full year’s worth of tax relief for the working taxpayers of this country. Now it’s up to Harry Reid; the bill is back in the Senate.”

Cantor went on to say that if “Reid says that he’s not going to appoint conferees; that he’s not going to do his job; then he will have to answer to the American people. Look, everyone in this town says the 60-day extension of tax policy is not a good thing to do. The president says it’s inexcusable for us not to do a full year of tax relief for the working people of this country. Let’s do our job.”

Sen. Christopher Van Hollen, D-Md., added on Wednesday’s conference call that what’s happenning now in the House is ”a fight between the Republican right and the Republican far right.”

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