After ‘Supercommittee’ Failure, Burden Falls on Full Congress to Prevent Scheduled Tax Increases

Nov 22, 2011 2:19pm
ap Debt Supercommittee jt 111120 wblog After Supercommittee Failure, Burden Falls on Full Congress to Prevent Scheduled Tax Increases

Pablo Martinez Monsivais/AP Photo

Now that the 12-member congressional “supercommittee” has announced its failure to produce an all-encompassing, deficit-reduction package before its Wednesday deadline, the full Congress faces deadlines of its own.

Before lawmakers pack up for Christmas, they must first decide whether to extend the payroll tax break and long-term unemployment benefits, both of which expire Dec. 31.

“I find it very hard to believe they would end the benefits all together,” said Dean Baker, the co-director of the Center for Economic and Policy Research. “I don’t think they want to have more people see more money pulled out of their paycheck come Jan. 1.”

President Obama jetted to New Hampshire today to urge Congress, or more pointedly, Republicans in Congress, to extend the 2 percent payroll tax cut that he championed last year. That lower rate, which Obama said put about $1,000 into the average American’s pocket in 2010, is set to rise back to 6.2 percent in 2013.

“If Congress refuses to act, then middle-class families are going to get hit with a tax increase at the worst time,” Obama said. “We can’t let that happen. Not right now. It would be bad for the economy. It would be bad for employment.”

In the president’s jobs plan, he not only extends the payroll tax cut, but further decreases the rate from the current 4.2 percent down to 3.1 percent.

“That isn’t a band-aid, that is a big deal,” Obama said, adding that the additional cut would save the average taxpayer $1,500 next year.

Obama’s American Jobs Act was blocked by Republicans in both the House and Senate. He has since tried to push pieces of it through Congress. After successfully passing a veterans’ benefits bill earlier this month, Obama said he will push for a vote on the payroll tax extension shortly after Thanksgiving.

“In the spirit of Thanksgiving, we are going to give them another chance,” he said Tuesday. “Next week they’re going to get to make a simple vote. To be clear – no, your taxes go up; yes, you get a tax cut. Which way do you think they should vote?

“Tell them ‘Don’t be a Grinch,’” Obama added, calling on the crowd to contact their Member of Congress. “Don’t vote to raise taxes on working Americans during the holidays.”

The payroll tax break alone accounted for about one-fourth of the 2 percent growth in GDP this year, Baker said. In the unlikely event that Congress decides not to extend the cuts, he said it would be a “fairly big hit to the economy.”

Extending them, on the other hand, is not likely to boost economic growth either.

“It’s not going to make anything better than it is,” said Roberton Williams, a senior fellow at the Tax Policy Center. “It is just going to keep things from getting worse.”

Together with extended unemployment benefits, the payroll tax break carries a $168 billion price tag, a pill that could prove hard for budget-conscious Republicans to swallow.

“When total revenues are at an historic low, it’s not the best time to be cutting into almost the largest and most reliable source of revenue,” said William McBride, an economist at the conservative Tax Foundation. “It’s a holiday and in that sense it is bad tax policy because it has no effect on long term economic planning.”

With the House set to adjourn for the winter holidays Dec. 8, Congress will have just two weeks between Thanksgiving and Christmas to deal with not only a payroll tax extension, but also the rather costly long-term unemployment insurance benefits.

Congress has extended such benefits twice in the past four years, but with austerity being the name of the game on Capitol Hill these days, the question will not be whether to extend them, but how to pay for them.

About 3.5 million Americans have received the long-term unemployment insurance, which extends the maximum number of weeks that the unemployed can collect benefits from a maximum of 26 weeks to, in some states, 99 weeks.

“One of the things we know about unemployment benefits is they are spent,” Baker said. “If they are not extended ,it could lower [GDP] growth again by about half a percent.”

Both payroll tax rates and unemployment benefits were expected to be included in the supercommittee’s plan to reduce deficits by $1.2 trillion in five years.

Now that the committee has abandoned any hope of reaching a deal, these two measures could be rolled into the third, and arguably most important, item on Congress’s pre-Christmas to-do list: to pass a budget.

The current continuing resolution expires Dec. 16, giving Congress three weeks to agree to a bill that will funding the government through the new year.

“These are all fairly clear items,” Baker said. “They know what they’re talking about and both sides have probably already thought through the next step. I would be very surprised if they don’t pass.”

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