Republicans Under Pressure to Accept Payroll Tax Cut Extension

The Capitol building is seen at sunrise on Capitol Hill in Washington.

The Capitol building is seen at sunrise on Capitol Hill in Washington.  (Reuters)

Republicans were under growing pressure on Wednesday to agree to a 60-day extension of an expiring payroll tax cut for 160 million workers and end a stand-off with Democrats that threatens to undercut a fragile U.S. economic recovery.

If the Congress cannot reach a deal by Dec. 31, the payroll tax American workers pay to fund the Social Security federal retirement program will rise immediately to 6.2 percent, from 4.2 percent.

Many economists and the White House warn that U.S. economic growth will suffer in 2012 as most workers would be hit with an effective $1,000-a-year tax hike.

The Republican-led House of Representatives on Tuesday rejected a two-month extension of the payroll tax cut that had been passed overwhelmingly by their colleagues and Democrats in the Senate, and demanded fresh negotiations on the issue.

Senate Democrats, sensing they have a political advantage on the issue, are refusing to reopen negotiations and most have already left town for the holidays

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An editorial in the Wall Street Journal, which has often disagreed vehemently with President Barack Obama's economic policies, gave Republicans a scathing critique of their handling of the payroll tax cut issue, saying they "achieved the small miracle of letting Mr. Obama position himself as an election-year tax cutter."

The editorial urged Republicans "to cut their losses and find a way to extend the payroll holiday quickly."

The Wall Street editorial page often gives insight into the thinking of the nation's leading conservatives in business and politics. Wednesday's editorial, headlined "The GOP's Payroll Tax Fiasco" suggests widespread anxiety among conservatives over the House Republican tactics.

A number of Republican senators have also blasted their House colleagues over their handling of the issue.

Republican Senator Scott Brown said: "House Republicans would rather continue playing politics than find solutions" and added that their actions would damage a fragile economy.

Veteran Republican Senator Charles Grassley, in an interview with Iowa radio station WHO, said, "I'm not going to argue with the House of Representatives, but do they want taxes to go up on January first or don't they?"


But House Speaker John Boehner, the top Republican in Congress, and the No. 2 Republican in the House Eric Cantor, stood firm on Wednesday, demanding that Democrats re-enter negotiations to extend the payroll tax cut for a year.

"All we're asking for is to get the Senate members over here to work with us to resolve our differences so we can do what everybody wants to do: extend the payroll tax credit for the next year," Boehner told reporters.

The House Republican leaders argue that the two-month extension creates uncertainty for workers and employers and is unworkable.

The Republican stance on the one-year extension is an about-face from their original position on the issue. Just days ago, many House Republicans were speaking out against the extension and questioning its stimulative impact on the economy.

They softened their position after Republican leaders warned of a voter backlash in 2012 if the party was seen to be raising taxes on working Americans.

Cantor on Wednesday called on Obama to get directly involved in the talks to resolve the dispute. The president so far has preferred to keep his distance and instead has been using the bully pulpit of his office to press Republicans to agree to the Senate deal.

The showdown has the potential to deliver a political lift to Obama and his Democrats at the expense of Republicans who want to make 2012 a referendum on Obama's handling of the economy.

White House chief economist Alan Krueger warned that the U.S. economy would suffer if the payroll tax-cut is not extended.

"Many economists have boosted their forecasts of economic growth for next year on the assumption that the payroll tax cut and extended unemployment benefits will stay in effect," Krueger will say in a speech to be delivered in Charlotte, North Carolina on Wednesday.

One business group, the International Franchise Association, on Tuesday said that a failure to extend the worker tax cut could jeopardize the creation of 168,000 new jobs in 2012.

With members ranging from restaurants and hotels to automobile service companies and health clubs, the association said its members' businesses are "deeply reliant on consumer spending." A slowdown in spending, it said, would ruin expansion plans.