Tax cut pay-fors bog down lawmakers

With their approval ratings in the tank, Congress perhaps doesn’t need another anxiety-ridden, eleventh-hour deal. But with the payroll tax cut set to expire at month’s end, that may well be where lawmakers are heading.

Lawmakers tasked with hammering out a yearlong payroll tax cut extension appeared to jump-start their negotiations on Wednesday, after a month in which little public progress was made.

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But even as they dived deeper in to the details, the members of a House-Senate conference committee remained far apart in discussions over how to pay for their proposals. 

Rep. Dave Camp (R-Mich.), the chairman of the conference committee, said the panel should, nonetheless, proceed with some caution.

“We don’t have a lot of time, but need to give it some time,” Camp told reporters after Wednesday’s meeting. “I think we need to find some consensus where we can and help begin to find a way to move things to agreement, to consensus, to compromise.”

The pace of negotiations and the disagreements over offsets suggests that lawmakers could again be forced to make a mad dash toward a last-minute deal, as they did last year in agreements that staved off government shutdowns and raised the debt ceiling. 

That brinkmanship, as well as the failure of last year’s supercommittee to reach a deficit-reduction deal, helped push public approval of Congress down to record lows. 

But with Democrats feeling they have leverage in the negotiations, neither side has moved away from its preferred methods for paying for an extension of the payroll tax cut. 

On Wednesday, the House approved one of the GOP’s favored offsets, an extension of a pay freeze on federal employees.

Democrats have not embraced that proposal, and conferees from the party said Wednesday that they were still hopeful that a surtax on millionaires could be used to fund an extension of payroll tax relief.

“We’re not going to renegotiate what was done in the debt-ceiling increase,”  said Sen. Ben Cardin of Maryland, a Democratic conferee, about the federal pay freeze. “That’s off the table.”

If Congress doesn’t act by the end of the month, the payroll tax cut, which lowers the rate workers pay from 6.2 to 4.2 percent, will expire. 

Unemployed workers also would gradually lose upwards of 73 additional weeks of federal benefits, which combined with state benefits can provide as much as 99 total weeks of unemployment insurance. 

Meanwhile, doctors who treat Medicare patients would see a cut in their reimbursement rate. 

With that in mind, Camp, who also chairs the tax-writing House Ways and Means Committee, said the conference committee would convene on Thursday for its second meeting in as many days.

The panel met only once in January, as lawmakers spent much of the month away from Washington and House Republicans and Democrats held their annual issues retreats.

Taking his cues from the supercommittee, Camp had tried to limit Wednesday’s discussion to finding policy agreements on the payroll tax cut, unemployment insurance and the so-called “doc fix” — thus putting the discussion of how to pay for those choices off for another day. 

“It’s impossible to make headway on anything when everything is open for discussion at the same time,” Camp said early in Wednesday’s meeting. “So by narrowing the focus today, I hope to widen the areas of agreement between the House and Senate.”

That emphasis did limit the meeting’s discussion of the Keystone XL oil sands pipeline, an issue that some Republicans want to examine in the payroll tax discussions, and expired tax provisions, a priority for some Democrats. 

At the meeting, lawmakers generally backed a full year of the payroll tax cut and a permanent fix to Medicare reimbursement rates. But some conferees also said it was unrealistic to leave offsets out of the discussion. 

“Separating policy from pay-fors is somewhat problematical. Because the pay-fors involve policy,” said Rep. Sandy Levin of Michigan, the top Democrat on the Ways and Means Committee. 

Given the gulf on offsets, both Camp and Sen. Max Baucus (D-Mont.), the vice chairman of the conference committee, suggested Wednesday that another short-term extension of the tax relief may be needed. 

“Maybe it’s a shorter period of time. Not a full 10 months,” Baucus said. “I just raise that because pay-fors are going to have some effect on policy.”

A Baucus spokesman later specified that the Finance chairman would push for as long an extension as possible, and that moving away from a full year of the cut would only be a last resort.

“To ensure American families can continue receiving this critical tax cut, Chairman Baucus believes we simply must find a viable way to pay for the remainder of the year to find viable offsets,” the spokesman, Scott Mulhauser, told The Hill in an e-mail. “Only if that becomes untenable would he even consider carving back a month or so.”

Late last year, House Republicans had initially balked at the current two-month extension of the payroll tax cut, saying it didn’t offer enough certainty to workers and employers. 

But perhaps the biggest disputes between conferees centers on extending unemployment benefits.

Baucus, who also chairs the Senate Finance Committee, said that negotiators from his chamber hoped to offer their own proposal on the issue at Thursday’s meeting.  

But the Montana Democrat himself said the plan would deal with “second-tier” aspects of the unemployment insurance program, and some of his fellow Democrats even said the panel needed to work on broader matters.

“These are mainly second-tier issues,” Levin told reporters after the meeting. “And the real challenge is to tackle effectively the first-tier issues, which is to sustain the basic unemployment insurance program.”

At Wednesday’s meeting, Republicans stood by some of the unemployment insurance reforms tucked in a measure the House passed last year, which include requiring unemployed workers who do not have a high school diploma to be actively seeking a General Education Development certificate (GED).

Republicans are also seeking to allow states to drug-test those receiving unemployment benefits and have previously called for effectively capping at 59 the number of weeks an unemployed worker can receive benefits. 

“I think it is time to stop subsidizing drug use through federal benefits,” Rep. Kevin Brady of Texas, a GOP conferee, said at Wednesday’s meeting. 

But Democrats have said they don’t necessarily believe the expanded benefits need to be offset, saying those costs have historically been deemed emergency spending.

As part of their argument, Democrats have cited Congressional Budget Office analysis that says every dollar of unemployment insurance can put up to $1.90 back into the economy.

Republicans and Democrats also largely agreed on Wednesday that the current formula for calculating the Medicare reimbursement rate was flawed. 

And Democrats, and even some Republicans, have said they are interested in using savings from the drawdown in the wars in Iraq and Afghanistan to pay for a permanent fix on the issue. 

Some conferees said they don’t see much issue with the current pace of negotiations, nor the fact that the panel rarely met face to face last month.

“I don’t think all that time shouldn’t necessarily be counted against us,” Sen. Bob Casey Jr. (D-Pa.) told reporters on Tuesday. “When you’re in your state, hearing from people on these issues, that’s valuable.”

Russell Berman contributed to this report.

Updated at 11:50 p.m.