How Congress might solve its payroll tax cut extension impasse

December 21, 2011

I promise, I'm going to let this payroll tax rate cut extension lunacy go. But please indulge me in a few more thoughts about what has happened, or not happened, in Congress' latest lame attempt to do something that most of its members and most Americans say they want.

Political-animalsWhat's next? If everyone holds firm to their current positions, the payroll tax rate reduction will die on Dec. 31.

On Jan. 1, 2012, employers will once again start taking 6.2 percent, instead of this year's 4.2 percent, from workers' paychecks to cover Social Security taxes.

Seniors on Medicare who want to visit their doctors and folks receiving unemployment benefits also will have harder times when the new year rolls around.

If this happens, and if the expected public pressure and outrage is quick and loud, both the House and Senate would likely return sooner than planned in January to cut a deal to quickly address these three hot-button economic and political issues.

Scenario two is that Senate Democrats and the president could give in. It's happened (many times) before. And they could argue the political high ground of caring more for taxpayers (and patients and the out of work) and come back to town to talk with the House conferees, or at least the Republican panel members that House Speaker John Boehner has named.

This time, however, most Washington watchers think that Democrats see some real political advantage to holding their position. The show of backbone (finally!) would make the party's more liberal members happy.

A bonus, the Dems get to paint the House GOP, which already faces horrid public opinion numbers, as under the influence of its most right-wing segment as the 2012 election year begins.

A third option is that the House Republicans give. If/when they see that the Senate will not relent, Boehner and crew agree to the Senate's two-month payroll-tax cut extension.

Following Tuesday's House vote, CNBC's chief Washington, D.C., correspondent John Harwood said he talked with "one Republican aide who said we know that the House Republicans are eventually going to back down, the question is do they back down with just a fat lip, in which case we do it next week, or do they get a full black eye because they get beat up over the break and they do it January."

Under this scenario, after hearing complaints from their upset constituents, the GOP-controleld House comes back next week and agrees to the Senate's two-month bill with the proviso that a conference committee meet on a full, one-year payroll tax extension with spending cut offsets by Feb. 1. The Senate then could agree to that minor change by unanimous consent.

As I've mentioned before, my crystal ball is worthless when it comes to Congress.

But pressure for a deal is coming not just from affected Americans, but also the media — who would have thought the Wall Street Journal editorial board would blast the GOP leadership? — and, apparently most important to current Representatives and Senators, political consultants.

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