House Republicans divided over payroll tax cut

WASHINGTON Fri Dec 2, 2011 1:43pm EST

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WASHINGTON (Reuters) - Republican leaders in the U.S. House of Representatives pushed ahead on Friday to extend a popular payroll tax cut for another year despite opposition within their own ranks.

Following a 90-minute closed-door meeting, many Republicans said there was strong opposition but that House Speaker John Boehner planned to work to renew President Barack Obama's tax cut, which is set to expire on December 31.

Republicans have been lukewarm about extending this particular tax cut, saying it has failed to stimulate the economy and will weaken the Social Security retirement program over the long run.

But with fears of a political backlash in the run-up to November's presidential and congressional elections, their leaders have decided to also seek an extension.

If Republicans blocked the tax cut, "They (Democrats) are going to say, 'There they go, Republicans raising taxes,'" said Republican Representative Charles Boustany.

And so as Congress tries to wind down for the year, some Republicans, who rose to power opposing tax hikes, found themselves in the rare position of trying to block a tax cut financial markets think is vital to the economy.

Obama sought to ratchet up the pressure on Republicans to pass the extension, telling lawmakers they must not leave for their holiday break this month without taking action.

"We need to get this done. And I expect that it's going to get done before Congress leaves. Otherwise, Congress may not be leaving and we can all spend Christmas here together."

Late on Thursday, the Senate defeated competing versions of payroll tax cut extension bills, with most Republicans in that chamber bucking their own leadership's proposal -- a rare occurrence. Senate and House leaders are now expected to begin negotiating a compromise.

"There was a lot of push back" during the private meeting of House Republicans, Representative Jeff Flake told reporters as he left the room.

Flake, a conservative who has devoted his House career to controlling government spending, complained that it will take 10 years for the government to recoup the approximately $110 billion in lost revenues stemming from a continuance of the tax cut through 2012.

ECONOMIC STIMULUS?

"I think unless we have the courage right now to address entitlement reform, we shouldn't be extending the payroll tax holiday. But we don't have the courage right now to do that," Flake said.

Workers and employers pay the tax and the revenues are deposited into a Social Security retirement fund. The money returns to workers after they retire from the work force.

Obama and his fellow Democrats won passage a year ago of a one-year payroll tax cut to 4.2 percent, down from 6.2 percent.

The idea was that it would put more money, nearly $1,000 per family, in workers' hands to spend and thus help stimulate the economy. The White House has warned that letting the tax cut expire would significantly hurt the economy as it is struggling to grow.

Senate Republicans defeated a Democratic plan to offset the revenues that would be lost with a surtax on the wealthy.

Like their Senate counterparts, House Republican leaders have proposed paying for the tax cut extension in part by freezing federal employee wages through 2015, said Representative Steven LaTourette.

He said there was a long list of other savings, including some changes to Medicare healthcare programs and raising fees investors pay for mortgage transactions involving government sponsored agencies Fannie Mae and Freddie Mac.

All of these ideas have been discussed by Democrats and Republicans during budget talks earlier this year, he said.

The Republican plan, LaTourette said, would also extend unemployment insurance benefits for the long-term unemployed, but with some reforms.

LaTourette said some of his fellow Republicans proposed a "tradeoff" for extending the payroll tax cut.

"Some people think ... if you are going to give someone $900, that perhaps there should be a tradeoff: you have to delay your (Social Security) retirement for a month. That wasn't very popular" in the meeting, he said.

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