The House and Senate have reached an agreement on legislation to renew the two percentage-point cut in the payroll tax as well as jobless benefits for millions of unemployed Americans.
Sen. Max Baucus (D- Mont.) announced the deal, which has been one of President Obama's top priorities, late Wednesday night. It is hoped that the deal will be passed off for a vote in the House and Senate this week.
The payroll tax holiday - which is set to expire at the end of this month - could continue to save the average worker more than $80 a month, if extended and renew benefits averaging about $300 a week for the unemployed.
"The public wants action, and the economy needs help," Darrell West, director of governance studies at the Brookings Institution, told the Miami Herald earlier Wednesday.
Most of the major pieces of the legislation that were disputed are a continuation of current law, including the rates doctors are paid by Medicare, so they go into effect immediately. There is also a proposed reduction in the maximum unemployment benefits to 73 weeks from 99 for those hardest hit. Some of the policy changes associated with what is rumored to be the spending offsets will require time to implement, J.D. Foster, senior fellow in the economics of fiscal policy at the Heritage Foundation, said.
Officials have estimated that another 10-month extension may cost the Treasury about $100 billion.
Though an extra $80 or so a month may sound like small change to some, Foster said the extension of the payroll tax holiday is significant for many families.
"Family budgets across the country are under intense pressure because of the lingering effects of a very weak economy. Payroll tax relief really helps in this regard," he said.
However, said Foster, another extension does not extend help to the economy overall because there is still no such thing as a free lunch in fiscal policies.
"Families have more purchasing power, but government has to borrow the money that would have otherwise been collected in tax revenue, and that borrowing means dollar for dollar less capital available for the rest of the economy," he said.