Congress Still Deadlocked on Payroll Taxes, Unemployment

Published Feb 11, 2012. By Laura Green. In Palm Beach Post.

 — After ending 2011 with a showdown over a break in payroll taxes and extending unemployment payments, members of Congress returned in January pledging they would steer clear of dysfunction and find a solution to continue both benefits for a full year.

Now, just weeks from the Feb. 29 deadline, talks appear to be breaking down again over the question of how to pay for programs. Economists have warned that failing to extend the benefits could plunge the country back into recession and leave 9 million Floridians with smaller paychecks.

For the average household, that amounts to $1,000 less a year.

"It's hard to not expect things to go to the last minute and have brinkmanship, because that seems to be what they've been doing on everything, little issues to big issues," said Josh Gordon, policy director of the Concord Coalition, a nonpartisan group dedicated to promoting fiscal responsibility.

Republicans and Democrats clashed over these exact issues just before Congress went on its holiday break. The two parties compromised on a short-term extension in the Senate. House Speaker John Boehner, R-Ohio, thought he had his members on board, too, only to discover that the more conservative wing would not support the deal.

Some Republicans instead wanted to use the extension to change unemployment insurance, requiring drug testing and a GED before someone out of work could collect a check. Although that effort failed in December, Republicans have taken up the issue again. They are also proposing changing the income rules so that more Medicare beneficiaries are considered wealthy enough to pay more for their health care.

Republican inner tensions 'hardening'

Democrats, meanwhile, want a new tax on millionaires to pay for the tax break and unemployment extension.

Republicans were the ones blamed when Congress nearly failed to extend the benefits in December.

Thomas Mann, a liberal congressional scholar who is co-writing a book about Congress called It's Even Worse Than It Looks, thinks Republicans have the most to lose this time, too.

"If they fail to act, they open themselves to charges that they are working against economic recovery and jobs to advance their electoral interests," he said.

"Democrats are playing it perfectly," said Steve Bell, a Republican and senior director of the Economic Policy Project at the Bipartisan Policy Center. "They're just sitting back, letting Republicans thrash around, half the time throwing punches at each other. They don't have to do anything."

Bell has been watching his party closely. The conflict reminds him of the breakdown of the Democrats in the 1970s when Southern Democrats had to grapple with a new generation born in the anti-war and Watergate eras.

The same thing is happening to Republicans, who are being pulled in one direction by the mainstream of the party and in another by a newer group who want to take it on a more conservative track.

"The tensions inside the Republican Party seem to be hardening," Bell said. "The cracks are not healing; they seem to be widening a little bit."

Republicans are also turning out to be "slow learners," Bell said. "They are fighting over almost the same darn things they were fighting over before. They either don't care about what's happening or they honestly don't understand that they've got to stop this."

Florida could lose $30 million a week

While Gordon and Bell both worry about the debt the nation is carrying, they say that fighting over how to pay for the tax breaks and extending unemployment benefits shows a lack of understanding of the economics at play.

"If you do the payroll tax cut but then you cut the exact same amount from spending the same year, it really mutes the ability of the payroll tax cut to stimulate the economy," Gordon said. "Raising taxes on all wage earners is clearly going to harm economic growth. There is almost no one who thinks it wouldn't slow consumer demand and slow consumer spending."

Failing to extend unemployment benefits could be damaging, too, the experts said.

If unemployment benefits are not extended, Florida stands to lose roughly $30 million a week in direct benefits and even more in the loss of mortgage payments, grocery purchases and other spending those who are out of work may no longer be able to afford.

Congress should extend both benefits now and instead pay for the extensions several years from now, when the economy has recovered enough to withstand a significant spending cut, Bell and Gordon said.

And if the economy is not reason enough for the two parties to come to agreement, there's always the political risk of not getting a deal done.

"I can't imagine either side would want to be blamed if the economy stalls, which is entirely possible no matter what they do," Gordon said.

"If you have this brinkmanship that results in a tax increase for every American worker, that's a pretty easy case to make against the party that let that happen."