U.S. Senate Passes Payroll Tax Cut Extension Q By Steven Sloan and Richard Rubin -

U.S. Senate Passes Payroll Tax Cut Extension
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By Steven Sloan and Richard Rubin -
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The U.S. Senate passed legislation that extends a payroll tax cut and emergency unemployment benefits for two months while calling on President Barack Obama to decide whether to approve a Canadian oil pipeline within 60 days.
Today’s 89-10 vote sends the bill to the U.S. House of Representatives, where lawmakers could meet to pass the measure as soon as Dec. 19 and send it to Obama. The $33 billion cost of the bill is covered by raising the guarantee fees that government-backed mortgage companies Fannie Mae and Freddie Mac (FMCC) charge to lenders for new home loans.
The short-term agreement will put the payroll tax cut and related issues before Congress early in 2012, and will give workers concerned about seeing their take-home pay decline a temporary reprieve.
“It makes no sense for two months to come back and fight the same fight we’ve been fighting for how long now,” said Senator Joe Manchin, a West Virginia Democrat who opposed the extension. “I feel very strongly that we need to stay here and fix things.”
When they return in January, lawmakers will reprise the themes they have been focusing on for months.
Short-Term Extension
Democrats plan to again make the case for raising taxes on high earners as a way to pay for the expiring payroll tax cut. The payroll tax funds Social Security.
Senator Robert Casey, a Pennsylvania Democrat, said he didn’t think Democrats have lost any leverage by agreeing to a two-month extension and to the pipeline language.
“You want to talk about leverage?” he said. “There are 160 million American workers who are depending upon people in both parties to make sure the payroll tax cut is in place for the entire year, and if you’re not in favor of that, I think you have a lot of explaining to do.”
Republicans, emboldened by their success in adding the Canadian Keystone pipeline language to the bill, said they are considering their conditions for another extension. One possibility, said Republican Mark Kirk of Illinois, would be language limiting industrial boiler regulation that was in the House-passed version of the bill.
Pipeline Issue
Republicans, including Senate Minority Leader Mitch McConnell, of Kentucky, claimed credit for the inclusion of the pipeline language, saying the project would spur immediate job creation if Obama approved it.
“Here’s the single-largest shovel-ready project in America,” McConnell said today. “It is literally ready to go, pending the approval of the president.”
Senate Majority Leader Harry Reid, a Nevada Democrat, told reporters last night the deal is “the best we could get.” He said Democrats will be better positioned to push for a long-term extension in February because lawmakers won’t also be negotiating a spending measure to keep the government funded.
“We have a lot of ammunition,” he said. “We will not have the threat of the government shutting down in two months.”
The payroll tax cut extension in the bill limits the benefit of the 2 percentage-point cut to the first $18,350 of wages or self-employment income earned in January and February. That’s one-sixth of the $110,100 limit of annual earnings subject to the Social Security cap.
That restriction means that high earners may not be able to receive the full benefit of the tax break on their January and February wages.
The mortgage fee provision raises by 10 basis points the fees that Fannie Mae (FNMA) and Freddie Mac charge to lenders. It makes a similar change to loans guaranteed by the Federal Housing Administration. The Fannie and Freddie fees are permanent; the FHA change expires in 2021.
To contact the reporters on this story: Steven Sloan in Washington at ssloan7@bloomberg.net; Richard Rubin in Washington at rrubin12@bloomberg.net
To contact the editor responsible for this story: Mark Silva at msilva34@bloomberg.net

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