UPDATE 3-Republicans drop demand to pay for U.S. payroll tax cut
* Democrats view Republican move as major concession
* Republicans accuse Democrats of blocking tax cut deal
* Republicans to hold separate talks on jobless benefits
By Donna Smith and Thomas Ferraro
WASHINGTON, Feb 13 (Reuters) - Republican leaders in the U.S. House of Representatives on Monday dropped their demand for spending reductions to pay for extending a tax cut for 160 million American workers, setting up a likely breakthrough for agreement with Democrats.
The about-face cleared the way for the Republican-led House to vote this week to renew for 10 months the tax cut set to expire on Feb. 29.
The Democratic-led Senate would likely support the payroll tax extension as laid out by the Republicans, even though they prefer including in the deal provisions on jobless benefits and payments for doctors treating Medicare patients that Republicans now want to negotiate separately.
Notably, the offer was issued by both House Speaker John Boehner, the top U.S. Republican, and his deputy Eric Cantor, who has often taken a more hardline approach in budget negotiations with Democrats over the past year.
Republicans made deficit reduction a rallying cry during last year's budget battles with Democrats that brought the U.S. government to the edge of a shutdown three times and cost the country its coveted AAA credit rating from the Standard & Poor's rating agency.
Dropping the demand for spending cuts to finance the payroll tax cut could draw fire from conservatives within the party who oppose adding to a trillion-plus deficit.
The decision, however, allows Republicans to put behind them an issue that has divided them and hurt their tax-cutting image among voters before the November elections.
"They folded," a senior Democratic aide said. "Republicans know their ongoing handwringing on getting their members to support this tax cut is a loser for them."
Many economists said extending the tax cut through the 2012 election year was needed to shore up sluggish U.S. growth even as some Republicans questioned its economic value. The tax cut could inject about $100 billion into the U.S. economy this year.
If the impasse had persisted, President Barack Obama could have added it to his list of complaints about what he calls a "do nothing Congress," a central theme in his re-election campaign.
ELECTORAL CONCERNS WEIGH
Public approval of Congress is at record lows and polling data show voters primarily blame Republicans, who control the House of Representatives.
"In the middle of the Republican presidential primary and the general election coming up, they didn't want to saddle their party with torpedoing a bill to extend a tax cut," said Dan Ripp of Bradley Woods, a private firm that tracks Washington for institutional investors.
Republican Senator Ron Johnson, a favorite of the conservative Tea Party movement, voiced concerns about adding the roughly $100 billion cost of extending the payroll tax cut to the debt but acknowledged that "there is such great political pressure" to extend the payroll tax cut.
Democrats have gained an upper hand in the battle over the payroll tax cut, using Republican opposition to a Democratic plan to pay for it with a tax on millionaires to portray them as favoring the wealthy over the struggling middle class.
The White House reacted cautiously to news of the Republican offer, first reported by Reuters, calling it "hypothetical."
Congressional Democrats said they would prefer to negotiate a comprehensive payroll tax cut package that also included an extension of unemployment insurance benefits and provision to continue pay at current rates for doctors treating elderly Medicare patients.
"Republicans are suddenly feeling the pressure to make sure middle class tax cuts are extended without delay," said House Democratic Whip Steny Hoyer. "But we cannot ignore Americans who are out of work through no fault of their own, or put at risk up to 48 million seniors' access to their doctors."
STALLED TALKS NO MORE
Talks on extending the 4.2 percent rate on taxes workers pay into the Social Security trust fund had stalled over how to pay for it, with both sides refusing to make significant compromises and accusing each other of bad faith negotiations. If Congress fails to extend the tax break, the payroll tax rate workers pay will rise to 6.2 percent on March 1.
Boehner and Cantor blamed Democrats for blocking agreement on spending cuts to cover the roughly $170 billion price tag of extending the payroll tax cut and unemployment insurance for a full year, along with keeping doctor payments under the Medicare health insurance program for the elderly at current rates.
"(This) has made it necessary for us to prepare this fallback option to protect small business job creators and ensure taxes don't go up on middle class workers," they said in a statement.
Republicans first made the compromise offer over the weekend, aides said.
A Republican aide said the party had been discussing the move for a week and decided to go ahead with the plan when weekend talks failed to produce a comprehensive agreement.
Talks over the weekend were held between Senator Max Baucus, the top Democratic negotiator, and Representative Dave Camp, the top Republican negotiator.
After the weekend discussions, Camp spoke by phone with fellow House Republican leaders, including Boehner and Cantor, and decided to move ahead with a separate payroll tax cut bill that doesn't include spending cuts to pay for it.
Negotiations will continue on averting a pay cut for doctors treating Medicare patients and on an extension of jobless benefits for the long-term unemployed, while also seeking a way to pay for the package, the Republican leaders' statement said.
A senior Senate Republican aide predicted that the House Republican leadership plan would win Senate support.
"We have said that tax cuts tend to pay for themselves and we should not be overly concerned with paying for them," the aide said.
"They (House Republican leaders) came to the same conclusion as we (Senate Republicans) did last December: it's not smart being seen as being opposed to a tax cut or demanding that they be paid for," the aide said.
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Many Americans are confused about how U.S. corporations can be making record profits yet not paying any federal income taxes. The way most of them do it is through the “pass-through.”
Sole proprietorships, partnerships, most LLC’s, and Sub-chapter S corporations qualify for pass-through status.
http://en.wikipedia.org/wiki/S_corporation
Despite record high corporate profits, about two-thirds of U.S. companies don’t any income taxes to the federal government whatsoever and the percentage of U.S. companies doing this is increasing.
The ones that still do pay federal income taxes employ accountants to take advantage of loopholes and to shield profits in complex tax shelters to reduce tax liabilities as much as possible but let’s look at the ones that don’t pay any income taxes (often despite record profits).
These companies are called pass-throughs which are structured to shuttle company profits along to investors (e.g. other names for “investors” are “shareholders” and “owners”).
Pass-through companies use a special structure to pass along profits to investors who then are supposed to pay income taxes. Despite taxes for the wealthy being at historically low rates currently, they funnel this money into hedge funds and other tax sheltered vehicles.
Pass-throughs are legal and encouraged by Congress and state governments and the Wall Street Journal reports that 69 percent of U.S. corporations were organized as nontaxable pass-through businesses in 2008.
Contrast that with the year 1986, when non-taxable U.S. corporations only comprised 24 percent of all U.S. corporations.
But the percentage today is actually higher when pass-through partnerships and sole proprietors are included.
In total, about 75% of all U.S. businesses pay no federal income taxes anymore and their number is rising thanks to the pass-through.
Large companies are often structured as pass-throughs, with an estimated 60 percent of U.S. businesses that have profits of $1 million or more comprising this category, the largest such percentage of nontaxable businesses in any developed country.
http://bottomline.msnbc.msn.com/_news/2012/01/10/10094176-companies-that-pay-no-federal-income-tax-on-the-rise
As stated, the money passes through the non-taxable corporations right into the wealthy’s hedge funds where they often pay less percentage of their income than the typical middle-class wage earner.
Our government also bestows money grants to these U.S. companies from public funds and process U.S. business applications to insource foreign workers which displaces American workers while permitting them to offshore and outsource American jobs, capital investment, and innovation to foreign countries and workers.
For example, though quotas do exist, in 2010 the U.S. government processed 422,228 employer applications requesting 851,556 foreign workers in 2010 so American corporations can give foreign workers American jobs right here on U.S. soil.
http://www.foreignlaborcert.doleta.gov/pdf/oflc_2010_annual_report_master.pdf
Much of the “job growth” we see in the news today is going directly to these insourced foreign workers and immigrants both legal and illegal.
The Center for Immigration Studies (CIS) was able to show that in Texas, for example, between 2001 and 2007 81% of all new job growth went to immigrant workers (both legal and illegal) instead of American natural born citizens.
http://cis.org/immigrants-filled-most-new-jobs-in-Texas
Our government also enables a broken U.S. immigration system that fostered the establishment of Spanish-speaking immigrant networks all over the SouthWest that block American citizens from working in the U.S. as those jobs go directly to the friends and family of the immigrants bypassing American workers.
A UCLA study showed that a weak economy in the state of California was the result of more than two million Spanish-speaking immigrant workers who were receiving their pay off the books without paying taxes. These immigrant networks only hire other immigrants.
http://www.sfgate.com/cgi-bin/article.cgi?file=/chronicle/archive/2005/09/28/BUG92EURPQ1.DTL&type=business
Our government makes the American worker pay the lion’s share of the country’s bills (the individual income tax has been the largest single source of federal revenue since 1950) while engaging in all of the above practices.
I hope you have found this informative and will think about the ramifications of all this during this year’s elections.
It is sad that it took a 10% approval rating and massive public outcry to get Republicans to actually put their country before their whacked political ideology and intransigence. But hey, let’s not look a gift horse in the mouth.
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