CHN: Congress Not Anxious to Raise Working Families’ Taxes in January

Congress wants to go home.  But they don’t want to leave without ensuring that workers’ payroll taxes don’t go up with the new year.  Nor do they want to let federal unemployment benefits expire altogether, although the prospects for preserving the current level of assistance seemed problematic as the negotiations wore on.  Preventing a 27 percent cut in Medicare physician payments is another priority.  How to pay for these and perhaps some expiring business tax breaks remained a sticking point as of Friday morning, the day Congress had wanted to leave for the holidays.  But their departure time may not have to be delayed too many days.  If the House and Senate cannot agree on a year-long solution, they may pass two months’ worth.
The House passed a bill Tuesday, December 13, extending the current payroll tax cut for a year, continuing unemployment insurance (UI) but cutting it back by 40 weeks and making other restrictive changes, and preventing the drop in Medicare physician payments.  The House bill (H.R. 3630) passed 234-193, with 14 Republicans voting no and 10 Democrats voting yes.  It was opposed by most Democrats because it offset the bill’s costs in part by cutting funding under the new health care law and freezing federal worker pay for another year, and also because of environmental concerns over building the Keystone oil pipeline and reducing the Environmental Protection Agency’s authority.  Many Democrats also opposed the substantial reductions in unemployment insurance called for in the bill.

The President and many Democrats had favored paying for expanded payroll tax cuts and continued unemployment insurance by increasing taxes on incomes over a million dollars.  That was a non-starter for Republicans, who also favored continuing the existing payroll tax cut for workers but did not want to expand it.

A year-long payroll tax cut and UI extension, plus the Medicare “doc fix” and preventing some business tax cuts from expiring would cost over $210 billion; a temporary 2-month bill would cost $40 billion.  It seems likely at this writing that Congress will take the short-term option if all the differences cannot be resolved in time.

The Senate has scheduled a vote on the House bill on Saturday, December 17, the earliest possible time under Senate rules without bipartisan agreement to speed things up.  If that vote is held, it will fail.  At that point, some negotiated alternative is expected to emerge that will prevent a sudden loss of tax cuts, unemployment benefits, or Medicare payments to doctors.

House makes many UI cuts.  It was not clear how many of the unemployment insurance provisions in the House bill would make it into a final deal.   H.R. 3630 slashed the maximum number of weeks of UI by 40 (instead of a maximum 99 weeks of state and federal benefits, the jobless would not receive assistance for more than 59 weeks; in states with unemployment rates less than 6 percent the total would be smaller ), with states with the highest unemployment rates hit the hardest.  In addition, the House bill included many other restrictive measures.  It would allow states to require drug testing of every UI applicant, even though most states do not approve payment of benefits for workers let go because of drug use on the job.  The bill requires high school completion (or participation in a GED program) as a condition of receiving benefits, even though there is a nationwide waiting list of about 160,000 to get into GED programs.   H.R. 3630 gives states the authority to divert federal UI funds to pay for employment counselors or other employment programs, even though the clear mission of the federal UI program is to provide cash benefits while jobless individuals are looking for work.  The bill even charges UI recipients $5 a week (out of their meager UI benefits, which average $300 a week) to pay for reemployment services, whether or not the recipient is actually receiving these services.  In another attack on benefit levels, the bill removes the current prohibition against reducing the size of state benefits as a condition of states’ utilizing federal UI payments.  (For more information about the House UI provisions, see analyses by the National Employment Law Project and the Center on Budget and Policy Priorities).

The National Employment Law Project had estimated that if UI were allowed to expire, nearly 2 million of the unemployed would lose benefits in January alone, with more left out in each succeeding month.  UI has multiple good outcomes.  The spending by families who have assistance creates about $2 of economic activity for every dollar spent.  Failure to continue federal benefits would pull $22 billion out of the economy, costing 140,000 jobs.  Unemployment compensation also lifted nearly 8 million people out of poverty between 2007 and 2010, of whom more than 2.3 million were children.  (See National Employment Law Project analysis).

Senator Tom Harkin (D-IA) was quoted in as saying that some of the House UI provisions were “off the table” as the final deal-making progressed.  Allowing states to divert UI money away from financial assistance was on that list; so was drug-testing.  But Harkin pointedly did not reject the notion of reducing the number of weeks of benefits.  However, a final agreement might include waivers to allow the 10 states with unemployment rates currently above 10 percent to have more weeks of benefits than other states.

No millionaires’ surtax; tapping the poorest children instead.  It is highly unlikely that a surtax on income above $1 million will be used as a source of funds to pay for extending the payroll tax cut, UI, or the Medicare “doc fix,” since most Republicans remain intransigently opposed.  (One exception is Senator Susan Collins (R-ME), who has co-sponsored legislation that would include such a surtax.)  A partial replacement of that income put forward by the House bill would restrict payment of the Child Tax Credit only to families in which a working parent supplies a Social Security Number, rather than an Individual Taxpayer Identification Number (ITIN).  Immigrant families make use of the ITIN.  Children of immigrants now make up one-quarter of all U.S. children; nearly 30 percent of children with foreign born parents are poor.  Eliminating ITIN eligibility for the refundable portion of the Child Tax Credit would take an average of $1,800 from very low-income working families, according to the U.S. Treasury.  Denying this income to low-income children in immigrant families would save $9.4 billion.

Other ways to pay for the package.  While the House bill included $31 billion in cuts to health care reform provisions to offset some of the costs, Democrats are unlikely to agree.  They are also expected to remain opposed to another year of frozen salaries for federal workers, estimated by the Congressional Budget Office as saving $1.8 billion in the House bill.  Other funding sources more likely to be agreed to include $16.5 billion from the auction and use of broadband spectrum and $35.7 billion in guarantee fees from Fannie Mae and Freddie Mac.  Those are not enough to pay for a full year of the spending and tax cut provisions.  There were reports that the negotiators may tap other sources of savings identified by the deficit reduction “super committee” to get the rest of the way.  If the package once again pays for its provisions with other spending cuts and no fair tax increases, human needs advocates will wonder under what circumstances the Administration and Senate leadership will ever be able to negotiate a deal that increases revenues.

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