US Congress approves payroll tax cuts extension

THE US Congress passed the controversial payroll tax cuts extension for the first two months of 2012, ending the risk of a sudden tax rise on January 1st.

The legislation will go to President Barack Obama for signing into law.

“I hope this Congress has had a very good learning experience, especially those who are newer to this body,” said Harry Reid, Senate majority leader. “It seems that everything we’ve done this past year has been a knock-down, drag-out fight. There is no reason to do that.”

Under a deal with Democrats in the Senate, there were administrative tweaks to reduce the cost to business of complying with a two-month extension. The House and Senate will negotiate how to offset the cost of an extension for the rest of 2012.

But the deal gives no ground on the main Republican demand of an immediate full-year extension paid for by limits on unemployment benefits and welfare eligibility.

The battle over the payroll tax extension has dominated US political debate in recent weeks and allowed Mr Obama to outflank Republicans on what is normally their signature issue of tax cuts.

The fight over the two-month extension “may not have been politically the smartest thing in the world”, said John Boehner, the Republican speaker of the House, “but let me tell you what. I think our members waged a good fight.”

Without a deal, payroll taxes would have risen from 4.2 per cent to 6.2 per cent, millions of Americans would have lost unemployment benefits and reimbursement to doctors who treat Medicare patients would have fallen by 27 per cent at the start of next year.

The deal was struck after the political costs for House Republicans mounted rapidly on Thursday as their isolation increased. Mitch McConnell, the senior Republican in the Senate, said the House should pass a two-month extension and Mr Obama seized on the issue.

“This is it; this is exactly why people get so frustrated with Washington,” he said before the deal was struck. “This isn’t a typical Democratic-versus-Republican issue.

“This is an issue where an overwhelming number of people in both parties agree. How can we not get that done?” – Copyright The Financial Times Limited 2011