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Congress Extends Payroll Tax Break Through 2012

By Bill Leonard  2/17/2012

Both houses of Congress on Feb. 17, 2012, approved extending a payroll tax break until the end of the year. In addition, the measure extends jobless benefits for the long-term unemployed and avoids a Medicare fee cut for doctors.

The vote to approve the bill (H.R. 3630) ended several months of bitter debate on how to pay for the tax cut and not add to the growing debt of the federal government. The tax cut and other provisions extended by the measure had been set to expire at the end of February 2012. Opponents of the bill included conservative members of Congress who complained that the tax cut was flawed because it was not offset properly by a reduction in spending.

The legislation would cost approximately $150 billion over 10 years, according to the Congressional Budget Office. The legislation would add approximately $90 billion to the federal deficit over the next 10 years. Lawmakers did agree on ways to offset the costs of extending unemployment benefits and avoiding reductions to Medicare fees.

H.R. 3630 extends a 2 percentage point reduction in the 6.2 percent Social Security payroll tax through 2012. The extension could minimize the issue as fodder for election-year politics. The tax cut affects nearly 160 million workers in the U.S. and increases the monthly take-home pay of a person earning $50,000 a year by approximately $83.

According to sources familiar with the issue, lawmakers cut a deal on passing the legislation in part through a requirement that new federal employees contribute more out of their pockets to their pension plans. This agreement will apply only to workers hired after the legislation becomes law and could save the federal government nearly $15 billion over 10 years.

In addition, Republicans agreed to support the tax-cut extension if the legislation reduced the eligibility of jobless benefits for long-term unemployed by six months. The bill would reduce the cap on unemployment benefits from 99 weeks to 73 weeks. Beginning Oct. 1, 2012, unemployed workers in states where the jobless rate is higher than the national average of 8.3 percent will be eligible to receive benefits for the maximum of 73 weeks. Workers in states where unemployment is equal to or less than the national rate will be eligible to receive up to 63 weeks of jobless benefits.

The legislation permits states to deny unemployment benefits for workers who lost their job because they failed or refused to take a drug test administered by their employer.

President Barack Obama had made extension of the tax cut and unemployment benefits a top priority for his administration. He has been encouraging members of Congress to end their squabbles and pass the legislation. The president said he would sign the bill.

Republican leaders expressed hope that the legislation will create jobs, but at the same time they blamed the president’s economic policies for making the bill’s passage necessary.

“There are a number of positive aspects to this agreement, including preventing a tax increase on hard-working Americans and the spectrum of this initiative, which will help create jobs, spur innovation, economic investment and support public safety,” said House Speaker John Boehner, R-Ohio, in a written statement. “But let’s keep in mind that this is an economic relief bill—not a growth bill. The only reason provisions at the core of this measure are even necessary is because the president’s economic policies have failed.”

Bill Leonard is a senior writer for SHRM.

Related Article:

President Signs Two-Month Payroll Tax-Cut Extension, SHRM Online Compensation Discipline, December 2011

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