Payroll Tax Cut: House GOP Offers Unfunded Extension, Avoiding 2012 Battle

Republicans in the House leadership Monday said they are open to passing a 10-month extension of a cut in payroll taxes without paying for it in order to avoid an election-year showdown on funding a popular proposal.

In a joint statement, House GOP leadership said they reached an impasse during negotiations with Democrats who control the Senate over paying for a payroll tax cut set to expire at the end of February. Also on the bargaining table is an extension of unemployment benefits slated to end Feb. 29 and the doc fix that increases government funding to doctors who treat Medicare beneficiaries.

House Republicans said they have a backup plan to extend the tax cut until the end of 2012, heading off politically damaging fight with Democrats in a crucial election year for both parties.

House Republicans will introduce a backup plan that would simply extend the payroll tax holiday for the remainder of the year while the conference negotiations continue regarding offsets, unemployment insurance, and the 'doc fix,' said a statement from Speaker John Boehner, R-Ohio; Majority Leader Eric Cantor, R-Va., and Rep. Kevin McCarthy, R-Calif., the GOP whip.

Democrats, Republicans At Odds Over How to Pay for Tax Cut Extension

Both parties are at odds over paying for the tax cut.

Republicans want the payroll tax cut to be paid with reductions in Medicare subsidies for high-income beneficiaries, a yearlong freeze on federal workers' pay and health spending in the health care law. Democrats, objecting to spending cuts, are pushing for a tax surcharge on millionaires.

Democrats have refused virtually every spending cut proposed -- insisting instead on job-threatening tax hikes on small business job creators -- and with respect to the need for an extension of the payroll tax cut, time is running short, the GOP House leadership said. Democrats' refusal to agree to any spending cuts in the conference committee has made it necessary for us to prepare this fallback option to protect small business job creators and ensure taxes don't go up on middle class workers.

Republicans have been burned by this game of hot potato before. In December, the GOP in Washington relented to a short, two-month extension of the tax after getting blamed for the stalled negotiations. The political fallout would have been harsher for Republicans had the payroll cut lapsed, taking money out of the pockets of working Americans during a fragile economic recovery.