With elections less than a year away and unemployment still at 8.5 percent, there is doubt that President Obama will be able to solve enough of the economic woes so he can be re-elected. His only hope is that Congress will be able to pass some of his piecemeal economic reform legislation to alleviate some of the tension on the economy. The payroll tax cut is his best option.
The tax takes 6.2 percent of a person’s income and uses it to pay for Social Security benefits. The proposed cut would drop this down 2 percentage points and would benefit over 160 million Americans. The cut will also not have any effect on a person’s future Social Security benefits.
Congress passed an extension of this tax cut right before they took their holiday break but that extension only lasts two months. It will expire on Feb. 29. If the policy is not renewed it would raise the taxes for those 160 million Americans. Four million Americans may even lose their unemployment insurance benefits.
House and Senate meetings began on Tuesday to figure out how to finance the 2 percent tax reduction.
“We should be able to get it done,” said Sen. Jon Kyl (R-Ariz). “The Joint Select Committee identified a lot of good offsets and so the opportunity for us to get it done is there.”
Other Republicans are also optimistic about the extension. “There’s a broad agreement on doing the payroll tax holiday through the end of the year. Republicans and Democrats agree on that,” said Senate Minority Leader Mitch McConnell. “The problem is the paying for it.”
Republicans want to include job creation measures. Part of those measures is to create the Keystone pipeline, which would stretch from Canada to the Gulf of Mexico. Republicans also want less environmental regulations for businesses.
The Democrats’ counterproposal is to place additional taxes on millionaires. The fear is that the ideological differences will lead to brinkmanship. But even Republicans leaders believe they will overcome these obstacles.
“We are in a formal conference with the Senate, and I’m confident that we’ll be able to resolve this fairly quickly,” said Speaker of the House John Boehner.
But Republican confidence rests on the assumption that Obama will agree to make the concession of the pipeline. No agreement has been made yet.
Obama may need to compromise considering the payroll tax cut is his “most pressing matter,” according to his spokesman Jay Carney. Obama plans to fully push for the extension in Congress in the upcoming weeks.
“This is a make-or-break moment for the middle class, and those who are struggling to get into the middle class,” said Chairman of the White House Council of Economic Advisers Alan Krueger. “While the continued expansion is encouraging, faster growth is needed to replace the jobs lost in the recent downturn and to reduce long-term unemployment.”
Expanding the payroll tax cut would be “key to avoiding recession,” according to Mark Zandi, the chief economist of Moody’s Analytics, a financial risk management firm.
The economy will be the biggest determining factor for the 2012 elections. If Obama and many Americans want to retain their current living situations, Washington must make the necessary compromises to get the economy rolling.