House Republicans cave on payroll tax

House Republican leaders have agreed to pass a two-month extension of the payroll tax cut and unemployment benefits, bowing to demands from President Obama, Democratic leaders and senior members of their own party.

Speaker John Boehner (R-Ohio) announced the agreement with Senate Majority Leader Harry Reid (D-Nev.) Thursday evening after briefing rank-and-file House Republicans on a conference call. The House has agreed to pass a version of the Senate’s two-month payroll tax cut legislation, with a fix demanded by Republicans to make implementation easier.

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“On Jan. 1, no American worker will see an increase in their taxes,” Boehner said at a hastily arranged press conference. “Middle-class families and small businesses are struggling, and they’re making sacrifices, and I think this agreement will help our economy.” 

According to a lawmaker who participated in the House GOP conference call, Boehner told the rank-and-file members that a deal was struck and the deed had been done. Unlike an extended phone call on Saturday, where members voiced extreme opposition to a Senate compromise, the Thursday conference call was one-way, and members were only allowed to listen in.

The agreement capped a disastrous week for Boehner, who was first forced into a fight with Senate Republicans by his own angry members and then was abandoned by senior Republicans, including Sen. John McCain (R-Ariz.), the 2008 presidential nominee, and Karl Rove, the chief strategist for the last Republican president.

“I don’t think this is any time for celebration,” Boehner said as he announced the agreement in the basement of a nearly empty Capitol.

Asked if he caved on the issue, the Speaker replied: “You know, sometimes it’s hard to do the right thing, and sometimes it’s politically difficult to do the right thing.”


“We were here fighting for the right thing,” he added. “It may not have been politically the smartest thing in the world, but I’m going to tell you what: I think our members waged a good fight.”

The agreement would buy time for congressional leaders to negotiate a full-year extension of the payroll tax cut, jobless benefits and other measures. The deal is clear victory for the president and Democratic leaders, who publicly browbeat the House GOP in recent days after the House rejected a Senate bill that passed overwhelmingly.

Obama congratulated Congress for ending "the partisan stalemate."

"This is good news, just in time for the holidays," he said in a statement. "And I want to thank every American who raised your voice to remind folks in this town what this debate was all about. It was about you. And today, your voices made all the difference."

Sensing a significant year-end political win, Democrats in the House and Senate could hardly contain their glee.

“I am grateful that the voices of reason have prevailed and Speaker Boehner has agreed to pass the Senate’s bipartisan compromise,” Reid said in a statement late Thursday afternoon.

Reid said he would soon appoint representatives to negotiate with House Republicans on a yearlong extension of the payroll tax holiday and unemployment benefits.

Rep. Steve Israel (D-N.Y.), the chairman of the Democratic Congressional Campaign Committee, crowed on MSNBC that the fight would mark “a defining moment” in the party’s effort to win back the House in 2012.

Senators want the next tax package to extend the freeze in cuts to doctors’ Medicare payments for at least a full year along with a slate of expiring business tax relief provisions.

Reid and Senate Republican Leader Mitch McConnell (Ky.) had attempted to reach agreement on a yearlong package but could not agree on how to offset $90 billion of the projected costs.

Democratic and Republican leaders have identified $100 billion to $120 billion in consensus cuts to pay for the proposals under consideration, which total around $200 billion.

“Year-long extensions of the payroll tax cut, unemployment insurance and Medicare payments for physicians has always been our goal, and Democrats will not rest until we have passed them,” Reid said.

“But there remain important differences between the parties on how to implement these policies, and it is critical that we protect middle-class families from a tax increase while we work them out,” he added.

McConnell said he was relieved that House Republicans had ended their standoff with Reid and touted legislative language expediting the Keystone XL oil sands pipeline.

He also criticized President Obama for exploiting the payroll tax debate to score political points.

“The president’s statements castigating House Republicans have thus amounted to the kind of unhelpful political opportunism Americans are tired of,” McConnell said.

“The president seems to forget that the only reason we are even discussing an extension of temporary measures like the payroll tax cut and unemployment insurance is his own failure to turn our nation’s economy around nearly three years into his administration,” he said.

As recently as Thursday morning, Boehner was still pushing for a yearlong extension, holding firm against increasing pressure from inside and outside his party.

But after McConnell issued a statement calling on the House to pass a short-term extension, Boehner convened a meeting of his chief lieutenant, Majority Leader Eric Cantor (R-Va.), and the eight House negotiators he appointed to serve on a conference committee.

At the meeting, Boehner won the support of Cantor and the conferees to negotiate a resolution with Reid, a Republican leadership aide said.

At 2 p.m., the aide said the Speaker convened a conference call with House leaders before reaching out to Reid’s staff with a proposal for the House to pass a two-month extension in exchange for a guarantee that Reid would appoint Senate conferees to hash out a yearlong agreement. Reid accepted the proposal.

“The leadership spoke tonight and all supported Speaker Boehner's efforts to get Leader Reid to improve this deal for small businesses,” said Laena Fallon, a spokeswoman for Cantor.

The agreement could be passed in both chambers by unanimous consent as early as Friday, but any individual legislator could torpedo the deal and force the full House and Senate to return to Washington and vote on it. The Senate bill upon which the agreement is based passed the upper chamber on Saturday by an 89-10 vote.

As to whether any of the 242 House Republicans would appear in the Capitol to object, Boehner said he had no guarantees. “I don’t know that, but that’s our goal, to do it by unanimous consent,” he said.

Democrats have already pledged to abide by a unanimous consent request to pass a short-term extension.

If a lawmaker does object, Boehner said he would “absolutely” call the full House back next week to pass the bill on a roll call vote.

A senior Senate Democratic aide confirmed that Reid accepted Boehner’s proposal to tweak the short-term extension but rejected the notion the House is sending a new bill to the upper chamber.

“The technical correction is totally innocuous — it’s something we’d have been happy to do if anyone had raised this concern last week. But it’s our bill,” said the Democratic aide.

The technical correction fixed a provision to ensure the nation’s highest income earners would not pay lower payroll taxes than middle-class workers if Congress failed to extend the holiday beyond two months.

The Senate bill originally proposed limiting the reduced 4.2 percent payroll tax rate to only the first $18,350 earned in the first two months of 2012. Next year, payroll taxes will be limited to the first $110,100 earned. Democrats worried the wealthiest taxpayers would qualify for a greater benefit if they earned much or all of that income at the year’s start.

But payroll processing firms complained it would be too difficult to reprogram software by the beginning of next year to recognize the threshold. 

Senate and House leaders decided to instead impose a claw-back provision that would tax income over $18,350 earned in January and February if Congress failed to pass a yearlong payroll tax holiday. This would spare payroll processing companies the burden of having to reconfigure their programs on short notice.  

Senate Democrats emphasize that they have been calling on House Republicans to pass the Senate bill since Sunday and say Boehner finally gave in.

"There was a small group in the House that basically believe in brinksmanship and paralysis of government until they got their way on just about everything," said Sen. Charles Schumer (N.Y.), the top messaging strategist for Senate Democrats. "This was the first time they had to sort of wave the white flag."

Schumer said the real test would come when members from both chambers sit down to work out the yearlong deal. If Republicans insist on paying for the extension with cuts to Medicare or other measures unpalatable to Democrats, it will betray the progress reflected by Thursday's deal, he said.

"Hopefully it's a metaphor for the future, because for a while, they wouldn't take yes for an answer, and now they have."

—Molly K. Hooper, Bernie Becker and Josh Lederman contributed.

This story was first posted at 4:30 p.m. and was last updated on Friday morning.