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House Republicans oppose Senate payroll tax bill

Speaker of the House John Boehner arrives to speak with the media after a meeting on legislative business with fellow Republicans on Capitol
Speaker of the House John Boehner arrives to speak with the media after a meeting on legislative business with fellow Republicans on Capitol

By David Lawder and Donna Smith

WASHINGTON (Reuters) - The fate of an expiring tax break for 160 million American workers was in doubt on Sunday after the top Republican lawmaker declared his opposition to a two-month extension passed overwhelmingly by the Senate.

House of Representatives Speaker John Boehner's comments highlighted a sharp divide between Republicans in the House and the 100-seat Senate, which passed the modest deal with 89 votes on Saturday.

Boehner said on NBC's "Meet the Press" program that the two-month renewal would create added uncertainty for workers and employers and that Congress should delay its holiday break to ensure that a one-year extension was passed.

"It's pretty clear that I and our members oppose the Senate bill. It's only for two months," Boehner said, adding that this was "kicking the can down the road."

The Republican-controlled House is scheduled to vote on the Senate-passed bill on Monday and is now expected to amend it or request formal last-ditch negotiations with the Senate.

The biggest sticking point for a year-long extension is how to cover the $120 billion in lost revenue to the Social Security Trust Fund. Republicans are demanding spending cuts to cover the cost and Democrats want to pay for it by closing some tax breaks for the wealthy.

Boehner said he wanted House and Senate leaders to reconvene for talks. Just one day earlier, he had told House Republicans they could pass the bill and accept as a victory a provision that would expedite a decision by the Obama administration on a controversial oil pipeline project.

The White House urged Congress to pass the two-month extension resulting from a bipartisan compromise, saying failure to do so would damage the economy and job growth.

"It's time House Republicans stop playing politics and get the job done for the American people," White House communications director Dan Pfeiffer said in a statement.

YEAR-END TAX HIKE LOOMS

By opposing the Senate bill, Boehner is siding with conservative and Tea Party-backed Republicans in the House whom he has had difficulty bringing under control all year, particularly on budget and spending measures.

They defied his leadership in debt-limit negotiations that brought the United States to the brink of default over the summer and cost Washington its prized Triple-A credit rating from Standard & Poor's.

Boehner's hardline stance on Sunday illustrated the quandary he is in - caught between wanting to appease a rebellious caucus and trying to reach a deal in time to ensure Republicans are not blamed for taxes going up in January.

Boehner is widely viewed as a pragmatist and was one of the Republican leaders pushing a skeptical rank-and-file to support extending the payroll tax cut or risk a backlash from angry voters in 2012 congressional and presidential elections.

Senate Majority Leader Harry Reid, a Democrat, noted on Sunday that Boehner had left negotiations on a compromise deal to Reid and his Republican counterpart Senator Mitch McConnell.

Boehner was also known to have been kept informed of the Senate negotiations that produced a deal on Friday night.

"Last week, Speaker Boehner sat in a meeting with Leader Reid and Leader McConnell and he gave Leader McConnell his proxy to negotiate a bipartisan compromise," Democratic Senator Charles Schumer said in a statement. "The Senate came to a deal, and now Speaker Boehner must keep his word."

Other Democrats piled on, with Representative Chris Van Hollen accusing Boehner of "walking away from bipartisan compromises to kow-tow to his extreme Tea Party wing of his caucus."

The high-stakes game of brinksmanship over the payroll tax extension could backfire for Republicans, especially if it is allowed to expire at year-end, resulting in a tax hike of about $1,000 for the average worker. The tax funds the Social Security federal retirement program.

Economists have warned that reverting to the higher payroll tax rate would drain stimulus from an economy struggling to add jobs, making it more vulnerable to recession in debt-stricken Europe.

The two-month extension would be of little help, said Michael Brown, an economist with Wells Fargo Securities.

"It is very likely that the uncertainty over the extension of the payroll tax will weigh on consumers," Brown said.

House Republicans have little to gain from a two-month extension, which would force another round of negotiations starting in late January, when the Republican primary season is in full swing. Electioneering rhetoric would likely dampen conciliaton and complicate the search for a deal.

Reopening the issue then could also make incumbents vulnerable to a fresh round of attacks by Democrats that they only favor tax cuts for the wealthy, not for struggling workers.

President Barack Obama, a Democrat, says the lower 4.2 percent payroll tax rate will help boost economic growth. Without congressional action, the rate on the tax that workers pay into the Social Security retirement fund will snap back to 6.2 percent.

PIPELINE SWEETENER

The two-month extension passed by the Senate contains a provision sought by House Republicans that would force Obama to accelerate a decision on TransCanada Corp's Keystone XL oil pipeline project, which is backed by some labor unions but opposed by environmental groups.

Obama wanted to take a year, beyond November's elections, to review the project, which would connect Canada's tar sands to U.S. Gulf of Mexico refineries. Republicans argue that the pipeline would create jobs at a time when the economy is struggling with an 8.6 percent unemployment rate.

(Additional reporting by William Schomberg in New York and Caren Bohan in Washington; Editing by Ross Colvin and Christopher Wilson)

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