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Financial Planning > Tax Planning

Congress Approves Two-Month Payroll Tax Cut Extension

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Both houses of Congress approved a two-month extension of the payroll tax cut on Friday, after House Republicans, led by Speaker John Boehner (R-Ohio),  bowed to vociferous and mounting criticism from all sides, including within their own ranks, and agreed not to block the measure.

The vote, which came in pro forma sessions in the House and Senate on Dec. 23, includes renewal of long-term unemployment benefits and certain payments to medical doctors. colloquially known as “DocFix.”

In a video press conference on Thursday night, Speaker Boehner noted that both houses of Congress would appoint conference members to “expeditiously” work out a longer extension of the payroll tax cut.

According to a New York Times report, conservative House Republicans who had originally scuttled the deal were furious with Boehner’s acceptance on Thursday of the new version, which he announced on a conference call with members during which he did not permit discussion of the issue. However, in his press conference on Thursday, Boehner said “our members waged a good fight” over the issue and “were able to fix what came out of the Senate” but that the House GOP would “do the right thing for the American people.”

Political fallout from the standoff, resulting from a possible Jan. 1 increase in payroll taxes and a cutoff of long-term unemployment benefits, was taking its toll on the party. Conservative Republicans had insisted that the two-month bipartisan deal, hammered out by negotiators in the Senate and approved 89-10 earlier in the week, was unacceptable.

Instead, conservatives were determined to have a one-year deal, with more substantial cuts, or none at all. As Democrats pounced on the news that taxes would rise and benefits fall during a struggling economy, there was mounting dissent even within the Republican party, with Sen. Scott Brown (R-Mass.) calling the rejection “irresponsible and wrong.”

The new two-month extension is basically the same as the one originally rejected on Tuesday, with minor adjustments to make it easier for small businesses to cope with the tax changes and to keep employers from manipulating employees’ pay if the tax cut extension fails to extend past two months.

The deal was arrived at with the understanding that Senate Majority Leader Harry Reid, D-Nev., will name negotiators for a committee that will work on a one-year deal, together with House negotiators to be named by Boehner. Reid had previously refused to name members to such a committee, saying that the Senate had already approved a bill and the House needed to do so as well, with discussion about a longer extension to occur during the two months of the already-approved extension.


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