House kills payroll-tax bill, sets up showdown with Senate

I guess it wouldn’t be Christmas without some brinksmanship all the way to New Year’s Eve.  Last year that brinksmanship involved the extension of Bush-era tax rates and unemployment benefits.  This year, thanks to a very curious reversal, it will be the payroll-tax holiday — or more precisely, its length:

The House voted Tuesday to disagree with the Senate-passed payroll tax bill, and to call for a House-Senate conference to sort out differences between the bills.

The move is intended to put pressure on Senate Democrats to reconvene and meet with the House over the bill, even as Democrats say the Senate is done for the year.

As predicted by Republican leaders on Sunday, the motion to disagree with the Senate was approved with the support of nearly every Republican. The motion was passed 229-193, and only 7 Republicans voting against it.

And why did House Republicans block the Senate bill?  Not to oppose the extension of the tax holiday, which would make some sense.  The cut in revenue to the Social Security fund expands the already-significant deficit between revenues and benefit payments in SSA, which means that more money has to come out of the general fund to cover the gap — and that means more deficit spending.  That might make sense if the cut produced a burst of economic growth, but just like the Making Work Pay tax cut in Obama’s stimulus package and the Bush withholding-tax reduction in 2008, the payroll-tax holiday failed to produce any such momentum in 2011.  It’s another failed gimmick from an administration that has offered nothing but failed short-term gimmicks in place of a responsible economic and regulatory policy.

No, the House blocked this bill because they objected to the temporary nature of the holiday.  Actually, that’s not even true, since their preferred position is another yearlong extension of the cut, which is so temporary and inconsequential that it has no macroeconomic impact at all.  They’re objecting because it will only extend it for two more months:

House Republicans say a conference is the best way to resolve the differences between the two bills — the House bill calls for a year-long extension of the payroll tax holiday and unemployment insurance, and pays for those extensions through reforms to these programs and further cuts to discretionary spending.

The Senate bill, which 39 Senate Republicans supported last week in an 89-10 vote, extends the payroll tax and unemployment insurance for just two months, and pays for those extensions by increasing fees mortgage holders would pay to Fannie Mae and Freddie Mac.

I have a question — do Republicans on Capitol Hill bother to talk to one another?  If this package was so objectionable, why didn’t Boehner work with Mitch McConnell to force the demanded compromise in the Senate?  Only ten Senators voted against this bill, which means that the overwhelming majority of the Republican caucus gave it the thumbs-up.  Under those conditions, Reid’s anger is entirely legitimate.  He and McConnell worked out a compromise in which Republicans got the pipeline in exchange for a short-term extension that will get Congress through the holidays, but allows the GOP to push for more in later negotiations. Bear in mind that both parties have taken the same approach on budgeting matters — as they did last year in that bout of brinksmanship.

If the House thinks holding this up after getting overwhelming bipartisan approval in the Senate will win them political brownie points, they’d better take another look at the polls.  Obama is moving up incrementally on questions of protecting the middle class, and the GOP now wants to give him the position of fighting for a tax cut that Republicans don’t oppose, but won’t approve, either.  If they want to fight for principle in opposing the payroll tax holiday, then this makes sense.  If they want to fight to make it permanent so that its limited ability to impact long-term business and budget planning, then it would also make sense.  But blowing up a compromise simply because they object to a shorter-term gimmick over a slightly longer-term gimmick is fundamentally unserious.

Update: Because I didn’t make one point clear in this post, a commenter asked a good question:

Sorry Ed, but the average person will take Republicans side on this. A tax cut for a year or a tax cut for 2 months?

Most people will want that year long cut.

Actually, both sides want a year-long holiday extension.  The Senate compromise was reached with the understanding that further negotiations would take place to establish it.  The House wants to bypass that and get it done now.  That’s the only difference between the House and the Senate at this point on the main issue.