Congress Extends Payroll-Tax Cut, Sends Bill to Obama

(Reuters) - Congress passed legislation on Friday that extends a tax cut for 160 million workers through December. The new law continues long-term jobless benefits, handing President Barack Obama a major victory in a year in which his re-election is at stake.

In two quick bipartisan votes, the House of Representatives passed the measure 293-132, and minutes later the Senate passed it 60-36.

The legislation now goes to Obama, who is expected to sign it into law promptly.

But significant numbers of Republicans in both chambers voted against the bill, laying bare deep divisions within the party over an issue that they have struggled with for months, and which threatened to hurt their 2012 electoral prospects.

The measure, while adding $100 billion to the already high U.S. deficit, is aimed at further stimulating the economy at a time when it is showing some positive signs. A sustained recovery would play well for Obama in his re-election bid in November.

The votes capped a fever-pitch debate in Congress that began in earnest in November. Democrats argued that the legislation would help spur the economy and provide needed cash to struggling middle-class families and workers, and to those who have been unable to find jobs amid an 8.3 percent unemployment rate.

Republicans have staked out a series of changing positions as they questioned the effectiveness of the tax cut. But their leaders ultimately saw that blocking the legislation would hurt them in November's congressional and presidential elections, especially as they protected tax cuts for the wealthy.

As a result, Republican leaders threw their weight behind the initiative to get it enacted, if only to take it off the political agenda.

After a full year of pushing controversial measures to reduce government budget deficits that have been topping $1 trillion annually, many Republicans found themselves voting on Friday for a measure that adds $100 billion to the deficit.

A significant number -- 91 of the 242 House Republicans -- obaabandoned House Speaker John Boehner and voted against the bill. Only 14 of 47 Senate Republicans voted yes.

In defending the payroll tax cut, which was not offset by spending cuts or a tax increase on millionaires as Democrats had sought, House Democratic leader Nancy Pelosi turned to a conventional Republican argument that tax cuts end up paying for themselves by helping boost economic growth. The payroll tax cut, Pelosi said, stimulates the economy by injecting demand and creating more jobs.

RARE BIPARTISANSHIP

Friday's vote also was a rare show of bipartisanship in the House -- one that is not likely to last long -- as Democrats and Republicans are expected to quickly return to bickering over a major highway funding bill and next year's budget.

Without the legislation, the 4.2 percent tax workers pay to fund the Social Security retirement program would have snapped back to its normal 6.2 percent on March 1. Instead, the average working family will now have about $1,000 in extra cash this year, money Obama hopes they will spend to help grow the economy.

Without this legislation, millions of the long-term unemployed would have lost benefit checks that help them buy groceries, gasoline and other basic goods.

Representative Joe Barton of Texas, a Republican member of the Tea Party Caucus, opposed the bill, saying, We are taking money away from the Social Security Trust Fund and we're substituting an IOU that may or may not ever be repaid.

The bill also averts through 2012 a 27 percent cut in payments to doctors who treat elderly Medicare healthcare patients.

Republicans won some reforms to the unemployment insurance program -- mainly a cut in the maximum number of jobless benefit checks, to 73 weeks by year's end from the current 99 weeks.

The communications industry secured access to more public airwaves, as selling off these government-owned spectrum rights was a major revenue raising tool to help offset the cost of the jobless benefits.

But federal workers, a punching bag for small-government Tea Party movement activists, would take another hit after two years of pay freezes. Pension benefits for newly-hired workers would be cut to help pay for some costs of the bill.

Stop singling them out and making them scapegoats, said Democratic Representative Chris Van Hollen, who represents many federal workers living in suburban Maryland just outside of Washington, D.C. They had nothing to do with the financial meltdown on Wall Street; they are not the drivers of national debt, he added.

Had the payroll tax cut and long-term jobless benefits been allowed to expire on Feb. 29, that would have shaved 0.7 percent point off of economic growth this year, according to Moody's Analytics chief economist Mark Zandi.

(Additional reporting David Lawder and Donna Smith; Editing by Mary Milliken and Vicki Allen)