Republicans retreat on payroll tax cut

House Republican leaders on Monday backed down on their demand to offset the costs of extending the payroll tax cut for the remainder of 2012.

The election-year move marked a major concession for Speaker John Boehner (R-Ohio) and his lieutenants, who are seeking to avoid a rerun of the resounding political defeat they suffered in December on the same issue.

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In their joint statement Monday, Boehner, Majority Leader Eric Cantor (R-Va.) and Majority Whip Kevin McCarthy (R-Calif.) announced that Republicans would unveil a bill simply extending the payroll tax cut through December.

The bill is being introduced as a House-Senate conference committee is negotiating over the payroll tax holiday, as well as the extension of unemployment insurance and a fix to the Medicare reimbursement rate for doctors.

GOP leaders will discuss the plan with their members Tuesday evening, and a House vote could occur as soon as Wednesday, officials said.

That approach represents a stark contrast to how Boehner handled the payroll tax issue last year. In December, Boehner floated the possibility of embracing the Senate’s short-term bill, which extended the tax cut for two months, but that was soundly rejected by members of his conference. This time around, Republican leaders made the decision as a group while lawmakers were out of town, opting to brief them later.

Furthermore, the joint statement from the trio of House GOP leaders indicates a unified front on how to proceed on the payroll tax holiday. The end of last year’s session was filled with tension between Boehner and Cantor and their staffs.

The conference committee of 20 lawmakers created to craft a year-long extension of the payroll tax holiday, jobless benefits and the so-called Medicare “doc-fix” has struggled to gain traction, with just two weeks left before the three policies expire.

“This is not our first choice. Our goal is to reach a responsible agreement in conference,” Boehner, Cantor and McCarthy said in their statement. “But in the face of the Democrats’ stonewalling and obstructionism, we are prepared to act to protect small businesses and our economy from the consequences of Washington Democrats’ political games.”

By saying they are prepared to pass a straightforward extension of the payroll tax cut, Republicans provided the clearest evidence yet that they were leery of allowing President Obama to attack them for causing a tax hike in an election year.

The strategy also suggests that GOP officials believe they can get a better deal on unemployment insurance and the Medicare reimbursement rate — now that policy differences over the payroll tax cut are off the table.

The No. 3 House Democrat, Rep. James Clyburn (S.C.), called the GOP backup plan a “cave” in a Twitter message, while other party leaders kept their cards close to the vest.

A senior Democratic aide said there is “a good chance” that a broader deal would be reached in the next couple of days, making the House GOP offer moot.

“The Republicans’ surrender on the payroll tax cut has focused the negotiations on payfors for [unemployment insurance] and [the doc fix], and offers are being traded on those elements,” the aide said.

Senate Majority Leader Harry Reid (D-Nev.) did not release a statement in the hours following the GOP announcement, while House Minority Leader Nancy Pelosi (D-Calif.) said that the payroll tax cut should not be paid for.

“The Republican plan to decouple the payroll tax jeopardizes both the ability of seniors to see their Medicare doctors and benefits for millions of Americans who lost their jobs,” Pelosi said in a statement.

At the White House, press secretary Jay Carney labeled the Republican statement “a hypothetical proposal,” and reiterated that extending unemployment benefits and fixing the Medicare payment rate are “equally important” to the president.

“We need to do all three of them, and that includes unemployment insurance,” Carney said.

Democratic conferees continued to push for negotiators to deal simultaneously with the three matters, while treading carefully with the Republican suggestion to separate out the payroll tax cut.

“I support the payroll tax cut extension,” Rep. Chris Van Hollen of Maryland, one of the Democratic negotiators, said about the GOP proposal on Monday. “What I think it shows is that House Republicans apparently don’t care about millions of seniors who are on Medicare who are going to be vulnerable.”

For months, Boehner and other Republican leaders had warned that not paying for the payroll tax cut would threaten the solvency of Social Security, which is funded by the payroll tax. And aides said that some members of the GOP conference could balk at any plan to forgo offsets.

But Boehner got political cover on his right flank on Monday, as the conservative group Heritage Action applauded the stand-alone payroll tax proposal and argued it would “deny obstinate Senate Democrats the ability to play partisan games.” Heritage has opposed several leadership bills over the last year, helping to siphon off conservative votes.

“Some people will approve while others will be concerned because these particular funds come out of Social Security,” an aide to a conservative lawmaker said. “But if it comes up for a vote, I expect it would pass with bipartisan support.”

The proposal shows the difficulty GOP leaders face in trying to thread the needle on the payroll tax cut.

Democrats such as Van Hollen have pounded Republicans over the GOP stance that the payroll tax cut, estimated to cost roughly $100 billion this year, needed to be paid for while the far more expensive Bush-era tax rates for the highest earners did not.

“Republicans know their ongoing handwringing on getting their members to support this tax cut is a loser for them,” a Democratic aide with knowledge of the payroll tax negotiations said. “Seems like this is their latest way out.”

Still, GOP leaders will have to sell a payroll tax plan that would add to the deficit at the same time they are preaching fiscal discipline and blasting Obama’s budget as reckless.

As recently as last week, both Boehner and Senate GOP Leader Mitch McConnell (Ky.) rejected the idea of passing the payroll tax cut without offsets. 

“At what point do we anticipate getting serious here about doing something about deficit and debt? We think we ought to pay for it,” McConnell said, in response to a question from The Hill. “Regardless of whether these kinds of things have been paid for or not paid for in the past, we are where we are. We’re running another trillion-dollar deficit for the fourth year in a row.”

Boehner and McConnell have worked well throughout much of this Congress, but they clashed on the handling of the payroll tax holiday two months ago. McConnell did not issue a statement on Monday in response to Boehner’s concession.

Payroll tax negotiators from both parties exchanged comprehensive offers over the weekend before talks hit a rough patch, officials from both parties said.

Those talks came shortly after Republicans quickly, and roundly, rejected a proposed Democratic offer on unemployment benefits that would have capped the maximum number of weeks an unemployed worker could be eligible for benefits at 93.

Republicans have proposed setting the maximum at 59 weeks, down from the current 99 weeks. A House-passed payroll tax extension from last year would also set education requirements for certain beneficiaries, and allow states to drug-test applicants for unemployment insurance.

— Peter Schroder contributed to this report.