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Boehner Won the Payroll Tax Showdown

While major media outlets from the major television networks to the Wall Street Journal viewed the showdown over the extension of the payroll tax holiday through a political lens in 2011 and judged House Speaker John Boehner the loser, the reality is that Boehner’s courageous stand – in the face of certain political pillorying – saved the country from a disastrous outcome and he should be commended for his substantive victory.

The most egregious flaw in the Senate-passed bill was that it simply could not be implemented. 

It appeared, remarkably, that 89 United States senators voted to pass a bill making a major change to the payroll tax without bothering to ask the companies that actually process payrolls if they could implement the change.

The Senate bill did not cleanly extend the current Social Security employee share of 4.2 percent for two months. Instead, it created a two-tiered payroll tax with a rate of 4.2 percent for the first $18,350 of income in those 60 days, with a 6.2 percent rate above that.

This establishment of multiple rates of payroll tax presents serious logistical challenges for payroll processors. In fact, the National Payroll Reporting Consortium strongly opposed to the Senate bill based on this feature, writing:

“The difficulty is in establishing a new Social Security Taxable Wage limit of $18,350 for the two-month extension period. More than ten percent of the workforce is likely to meet that limit, and would be subject to the higher 6.2% tax rate for earnings over that amount. However, many payroll systems are not likely to be able to make such a substantial programming change before January or even February. The systems affected tend to be highly complex, normally requiring at least ninety days for a change of this magnitude for software testing alone; not to mention analysis, design, coding and implementation.”

Forcing such a change without time to properly develop and vet the software to implement it would have been a complete disaster. 

Payroll processors would have passed on the fees associated with the crash programming changes to employers; companies that do their own payroll would have been desperately scrambling to implement the new feature; many companies would be left facing IRS penalties for failing to implement a change that nobody was prepared to implement.

Thanks to the leadership of Speaker John Boehner, that disaster has been avoided. 

While the Senate refused to come back to work to hammer out a year-long agreement or to act on any of the other critical elements of the House-passed version, the Senate and the White House backed off their demands that the House pass the deeply flawed Senate bill. 

Instead, by unanimous consent Congress passed and the president signed a new bill, H.R. 3765, which unlike the Senate bill allows payroll processors to keep the employee share of Social Security contributions at a flat 4.2 percent for two months. (It uses a clawback tax instead, which Congress can and will eliminate when they pass a longer extension.)

This was not an ideal outcome; clearly, the full-year version passed by the House, which also reformed unemployment insurance, stopped the EPA’s job-crushing Boiler MACT rule, and ended an outrage program that uses our federal tax dollars to lobby for nanny-state restrictions at the local level was a superior bill. All of these issues will be revisited when Congress returns to consider a longer-term extension.

But the bottom line is that if Speaker Boehner had done the politically easy thing and passed the Senate bill, Christmas would have been ruined for thousands of employers who would have faced a logistical nightmare. 

In light of that fact, it’s fair to say that, politics aside, Boehner won a substantive victory and the country is better off for it.

Phil Kerpen is vice president for policy at Americans for Prosperity and author of "Democracy Denied: How Obama is Ignoring You and Bypassing Congress to Radically Transform America – and How to Stop Him," available at DemocracyDenied.org.

Phil Kerpen is the founder of American Commitment Action Fund, on the web at www.BookerFAIL.com.