On November 21 the President signed into law a modest bill, H.R. 674, pairing small business tax breaks for companies that hire veterans and repeal of a three percent withholding tax on all government contractors.  The veterans’ hiring incentives were part of the President’s legislative package to create jobs; the withholding repeal was not, but had bi-partisan support.
In September President Obama offered the Jobs for America Act, with specific proposals to boost hiring, build infrastructure, preserve jobs and assist the unemployed.  Senate Democrats introduced the President’s legislation with their own proposal to pay for it through a surtax on income exceeding one million dollars.  When that bill failed for lack of 60 votes, Senate Democrats decided to break the package into smaller bills, each paid for by a very small surtax on millionaires’ income. The first two attempts at passing job-creating bills were an infrastructure bill to improve highways, transit, rail and aviation facilities and a bill to hire new teachers, police officers and firefighters and prevent layoffs.  They failed predominately along party lines, over mainly Republican objections to the millionaires’ surtax as well as opposition to direct federal action to spur job creation.

H.R. 674 was passed after the surcharge on millionaires was dropped in favor of other offsets.   The bill provides new tax credits to companies for hiring long-term unemployed veterans and veterans with service-connected disabilities, extends existing credits for hiring veterans through 2012, and requires the Department of Veterans Affairs (VA) to establish a retraining program by July 1, 2012.  The $8 billion cost is paid for by postponing scheduled decreases in fees charged to veterans obtaining VA-guaranteed mortgages until FY 2017.

The bill also repeals a requirement in the tax code not yet in effect that would have required local, state and federal government agencies to withhold federal taxes from payments to contractors.  The provision was intended to improve tax compliance.  The estimated 10-year cost of $11.2 billion is paid for by changing the income formula to include Social Security when calculating eligibility for Medicaid and for subsidies for the purchase of health insurance in the new state-run exchanges.  The bill unanimously passed the House 422-0 and it passed the Senate with the only dissenting vote cast by Sen. DeMint (R-SC).

Unless Congress acts in December, the payroll tax cut and federal Unemployment Insurance program will both expire.  Last year the employees’ share of the Social Security payroll tax was reduced from 6.2 to 4.2 percent, adding $1,000 to the incomes of middle-class families and costing $120 billion.  The President’s jobs bill calls for cutting the rate down to 3.1 percent at a cost of $175 billion.

The federal Unemployment Insurance (UI) program extends benefits to long-term unemployed workers who have exhausted 26 weeks of state benefits.  Extending UI faces opposition from conservatives and could prove challenging.  According to the Economic Policy Institute failure to extend the program would result in slowing economic growth and the loss of 560,000 jobs.  It would also result in extreme hardship for families of unemployed workers.

Senate leaders are contemplating the best way to proceed on both UI and the payroll tax cut, either moving free-standing bills or attaching either or both to other legislation.  Finding offsets to pay for these extensions will be a challenge.

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