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Government: How badly do Democrats want that payroll tax cut?

December 13, 2011 |  7:00 am

Dave CampHouse Republicans indicated last week that if the Obama administration wanted to extend the payroll tax cut for another year, it would have to agree to approve or reject the controversial Keystone XL pipeline proposal within 60 days. As it turns out, that's just one of several concessions the GOP is demanding.

The bill introduced late Friday by House Ways and Means Committee Chairman Dave Camp (R-Mich.) stakes out an aggressive position for Republicans in the negotiations to come with Senate Democrats and the White House. It's chock-full of provisions that will be toxic to Democrats, including proposals to:

  • Renew only a portion of the unemployment benefits the federal government has been providing, and make them available to fewer people.
  • Delay the adoption of disputed Environmental Protection Agency rules for commercial boilers and incinerators until after the 2012 elections.
  • Reduce discretionary spending even further than called for by the debt-ceiling agreement that Republicans and Democrats struck earlier this year.
  • Require that airwaves reclaimed from local TV stations be auctioned under a disputed set of rules that favor broadcasters and mobile phone companies.
  • Reduce the value of pensions offered to federal workers, even though the current federal program (unlike many state and local retirement plans) is fiscally sound.

The measure includes so many contentious items because a large number of GOP conservatives would just as soon let the payroll tax cut expire at the end of the year on schedule. To this faction, the cut exacerbates the federal deficit without delivering much of a boost to the economy. The Congressional Budget Office projects that workers would save most of the extra money they received as a result of the tax cut; as a consequence, every dollar of the tax cut would increase GDP by only 10 to 90 cents.

All the same, that's a source of growth. And it's strange to hear Democrats advocating a tax cut more eagerly than Republicans, and doubly strange to have the GOP being the party demanding concessions in exchange for a vote to lower taxes.

The most significant of the GOP demands may be the changes proposed in unemployment insurance. Instead of continuing to offer up to 73 weeks of benefits in the states with the highest unemployment rates, such as California, the House bill would offer up to 33 weeks starting Jan. 1. The law would also cut short the benefits for many of those who qualified this year for a full 73 weeks of extended benefits. According to Maurice Emsellem of the National Employment Law Project, Californians on extended benefits would probably be cut off in May.

The measure would also impose several new requirements on states ostensibly aimed at stopping the unemployed from lingering on the dole instead of looking hard for work. Among these is a requirement that benefits flow only to those who have high-school diplomas or the equivalent and a ban on benefits being paid to those with incomes of $1 million or more.

Those requirements might be appealing on some level, but they violate the spirit of the program. It's unemployment insurance, after all, financed at the state level by taxes on employers. Workers may not realize it, but the cost of those premiums are almost certainly passed on to them by their employers. That's why everyone who pays into the system should be eligible for its benefits, regardless of their educational attainment or their salary.

Economists are split on the larger effect of unemployment benefits, with some arguing that they encourage people to spend more time out of work and others contending that any such effect is negligible. The CBO falls into the latter category; its director told Congress last month that "the net impact on the unemployment rate from some workers’ reduced efforts to find a job would be slight."

One thing economists agree on is that the recipients of unemployment benefits spend them, which helps the economy. By the CBO's estimate, each dollar in benefits generates as much as $1.90 in GDP. That spending creates jobs, the CBO suggests, but the cost is about $50,000 to $250,000 per full-time employee.


Payroll tax follies

Common-sense advice for Congress

Mitt Romney and payroll tax Band-Aids

-- Jon Healey

Photo: House Ways and Means Committee Chairman Dave Camp (R-Mich.). Credit: Pablo Martinez Monsivais / Associated Press

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