How the Republicans Tried to Kill the Payroll Tax Cut…and Why

With the election year approaching, both parties are going to tell you that they will fight for you, the average American. Both will claim that, in the waning days of 2011, they pushed to lower your taxes, to boost the economy, to save the middle class.

Here’s how it really went down.

As part of the Democrats’ stimulus bill in 2009, the Making Work Pay credit reduced taxes by 6.2 percent, up to $400, on earnings, phased out between $75,000 and $95,000. (The numbers were double for couples.) It expired at the end of 2010.

Instead of renewing the MWP credit, Republicans insisted on replacing it with a two-percentage-point cut in employees’ payroll taxes, which reduced the average tax cut for low-income taxpayers and quadrupled the average tax cut for high-income payers — even though the poor are far more likely to spend those tax cuts and stimulate the economy.

The payroll tax cut cost almost twice as much as the MWP credit, but it didn’t affect the Social Security trust fund because the Treasury filled the hole with general revenues. In other words, they borrowed and increased the deficit. Apparently, Republicans didn’t care as much about the budget deficit as they did about tax cuts for the rich.  

Immediately after the President signed the payroll tax cut, leading House Republicans told The Hill that they had “no plans to extend” the tax cut beyond 2011.

They continued this message throughout the summer. House Budget Committee Chairman Paul Ryan said, “Temporary tax changes don’t work to create economic growth.” (Which we know to be false. The 2008 tax rebate increased the average household’s spending by $495, keeping consumption level while housing wealth plummeted.) House Speaker John Boehner called the tax cut “another little short-term gimmick.”

In the face of this opposition, Democrats pushed to extend the payroll tax cut, as well as extend unemployment insurance (UI) benefits for the long-term unemployed and postpone cuts in Medicare reimbursement rates for doctors (a.k.a. the “doc fix”). All were scheduled to expire on December 31.

Instead of increasing the budget deficit again, Democrats proposed paying for these extensions by increasing taxes slightly on incomes over $1 million. Senate Republicans blocked this proposal twice.

On December 13, House Republicans passed their own version. In addition to extending the payroll tax cut, UI benefits, and the “doc fix,” their bill allowed states to drug test all UI recipients, reduced the maximum UI eligibility from 99 weeks to 59 weeks, required the President to decide whether to build an oil pipeline from Canada to the Gulf within 60 days, extended tax reductions for corporations, loosened environmental regulations, allowed higher premium increases for flood insurance, permitted state public safety networks to use the public spectrum for private purposes, increased the guarantee fees charged by Fannie Mae and Freddie Mac, and froze the salaries of federal workers for the following year.

With the deadline fast approaching and no compromise in sight, Senate Majority Leader Harry Reid and Minority Leader Mitch McConnell agreed to postpone the debate — but not at the expense of the 160 million Americans whose taxes were set to go up in two weeks. On December 17,  the Senate passed a two-month extension of the payroll tax cut, UI benefits, and “doc fix,” with plans to work out a longer deal after the holidays.

House Republicans rejected the deal. Boehner said it would increase “uncertainty” in the economy. He wouldn’t even let the House vote on it.

Of course, he was lying. He never wanted the tax cut. He said so six months earlier. And he reiterated that point when he packaged it with a laundry list of Republican demands that he knew Democrats wouldn’t accept. He was trying to raise your taxes.

Fortunately, he didn’t get away with it. On December 22, he caved. On December 23, President Obama signed the two-month extension.

But House Republicans will live to fight another day. The question is: Will they fight for you?


This op-ed was published in today’s South Florida Sun-Sentinel.