Ex-Bush official involved in payroll tax letter touted by GOP

A former Bush administration official was intimately involved in a decision by a group representing payroll processing companies to send out a letter Monday criticizing Senate-passed payroll tax legislation.

The letter from the National Payroll Reporting Consortium, a coalition of major paycheck firms that includes Automatic Data Processing and Paychex, has become a central talking point for House Republican opponents of the Senate bill.

Pete Isberg, president of the National Payroll Reporting Consortium, told The Hill Tuesday that the group’s lobbyist, a former GOP aide who worked for the Senate Finance Committee and later the Treasury Department under former President George W. Bush, encouraged him to send the letter.

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The letter swiftly became a political football.

House Majority Leader Eric Cantor (R-Va.) flashed a copy of it during a television interview, and aides to House Speaker John Boehner (R-Ohio) blast emailed a Bloomberg article about the group’s concerns.

“The two-month plan that was passed by the Senate has now been deemed unworkable by the National Payroll Reporting Consortium, who sent up to Capitol Hill this letter,” Cantor told CNN’s Wolf Blitzer. “And basically, it’s saying that the Senate plan will provide more uncertainty, confusion, and will actually hurt workers.”

Republicans have used the letter to justify Boehner’s refusal to schedule a vote on the Senate bill itself, which would extend the payroll tax holiday for two months. Instead, the House passed a measure calling for a bicameral conference to extend payroll tax relief for a full year.

Isberg said the GOP lobbyist did not initiate the letter, and emphasized that the concerns of payroll processing companies are not politically motivated. But Isberg said the consortium’s Republican lobbyists helped make the decision to send out the letter.

Public records filed with the Senate office of public records show that two former Republican aides with the Groom Law Group registered to lobby for the consortium in July.

They are William Sweetnam, Jr., a former GOP aide on the Senate Finance Committee, and Brigen Winters, a former GOP aide to the House Ways and Means Committee.

Public records show the lobbying group has received $20,000 for its services since July — a relatively modest amount by K Street standards.

Isberg said he didn’t learn of the details of the Senate payroll tax compromise until Friday evening.

“It didn’t come to light until late Friday night,” he said. “We had to ask ourselves how difficult this would be. We touched base with the Groom Law folks. They said, ‘If you have a problem, you should speak up about it.’ ”

A congressional Democratic aide said Sweetnam manipulated the National Payroll Reporting Consortium.

“He pulled the strings on this whole thing. He orchestrated this whole letter. This guy is a Republican and a Bush guy,” said the aide. “The payroll folks run the coalition but they’re pawns. This guy really manipulated the trade organization.”

Sweetnam and Isberg both refuted this characterization.

Isberg said he was thinking about writing a letter and “they concurred that we should.”

“They didn’t exactly initiate anything,” he said of the Groom Law Group.

Isberg emphasized that his consortium is non-partisan and hired Groom to help explain the impact of pending legislation, not to influence lawmakers.

“We’re not engaged in lobbying,” he said.

Isberg said the National Payroll Reporting Consortium routinely advises Congress on the impact of legislative proposals.

He said the two-month extension would be a nightmare for payroll processing firms to implement because it includes a provision to ensure that wealthy income earners don’t pay a lower payroll tax rate than middle-class workers.

In 2012, payroll taxes will apply only to the first $110,100 of income earned over the course of the year. Democrats worried that if the lower 4.2 percent payroll tax rate expired on March 1, highly-compensated individuals might end up paying a lower tax rate than middle-income workers.

For example, a CEO earning $55,050 a month would reach the $110,100 cutoff by March. As a result, the executive would pay only 4.2 percent in payroll taxes for the year.

By contrast, a middle manager earning $120,000 in yearly salary would pay a 4.2 percent rate on the first $20,000 earned in January and February and a 6.2 percent rate on the $100,000 in income earned subsequently from March through December.

To eliminate this disparity, aides to Senate Majority Leader Harry (Reid) and Senate Finance Committee Chairman Max Baucus (Mont.) insisted on creating a new Social Security taxable wage limit of $18,350, according to a congressional source familiar with Senate negotiations.

Senate Republican Leader Mitch McConnell (Ky.) raised concern about the provision but did not block it because negotiations were moving so swiftly, said the source.

The provision would require people earning more than $18,350 in the first two months of 2012 to pay a 6.2 percent payroll tax rate on income over that threshold.

Isberg says there is not enough time for payroll processing companies to reconfigure their software to identify the income earners who surpass that limit and automatically kick them up to a higher rate.

“It’s complicated for all payroll systems and software developers. That limit doesn’t exist today. That needs to be installed. It would be costly and disruptive to do on short notice,” Isberg said.

The National Payroll Reporting Consortium recommended enacting the payroll tax holiday on Feb. 15 but making it retroactively effective on Jan. 1. If that’s not possible, the group suggested removing the $18,350 wage limit altogether.

Sweetnam, who worked in the Treasury Department’s office of tax policy during the Bush administration, said the $18,350 wage limit was not under discussion in November when representatives from the consortium met with Democratic and Republican congressional staff.

He said he told Senate staff that the provision would be very difficult to administer when informed Friday that it might be included in the bill.

Sweetnam said he talked with Isberg about the letter over the weekend. He said Winters was not involved.

“There wasn’t a political motive,” he said. “This just continues our effort to make sure this stuff is done in the right way.

“Pete actually wrote the letter,” he said.