Paychecks for 160 million workers will be reduced in Januaryunless lawmakers break a stalemate that could dent U.S. economicgrowth and poses political difficulties for a Congress with lowpublic approval ratings.

President Barack Obama, House Speaker John Boehner and SenateMajority Leader Harry Reid show no intention of making concessionson a tax-cut extension that would break the logjam. Obama insistedyesterday the only way to avert a payroll tax increase for workersin January is for the House to send him a two-month deal the Senatepassed Dec. 17.

Boehner and the Republican-controlled House pressed ahead withtheir plan as the House voted 229-193 yesterday, without anyDemocratic support, to reject the two-month bipartisan Senatemeasure and call for a yearlong extension of the tax cut.

The roll call was structured in a way that let lawmakers vote“yes” in an effort to avoid the appearance Republicans were vetoinga tax cut and violating a bedrock principle of the party. The Housemaneuver allowed it to move directly to a conference committee withthe Senate that Reid, a Nevada Democrat, had already rejected.

Boehner, an Ohio Republican, chose eight House Republicans tonegotiate a resolution of the impasse and demanded Democrats namelawmakers to join the deliberations and break the stalemate.

“There's no reason we can't do this,” Boehner said at a newsconference.

Reid refused, saying he wouldn't negotiate on a longer-termextension of the tax cut and other expiring laws, and that hewouldn't appoint negotiators until the two-month deal wascompleted. The hard-line positions create the potential forpolitical theater in the 10 days before the tax cut's year-endexpiration, with House Republicans possibly meeting amongthemselves without conferees from the House and Senate Democraticcaucuses.

The Republicans' “political strategy mystifies me” because “youcan't win by walking away doing nothing,” said DemocraticRepresentative Jim McDermott of Washington, who sits on the HouseWays and Means Committee, in an interview yesterday. “The Senatehas put down a very, very firm mark. They are not going tomove.”

A lower payroll tax rate of 4.2 percent is set to expire Dec.31, at which point the employee portion of the tax that fundsSocial Security will rise to 6.2 percent. Extending the tax cut hasbeen a focus of the jobs plan that Obama proposed in September.

Middle-Class Concerns

An emphasis on middle-class concerns has helped Obama's publicapproval ratings, with 49 percent of Americans approving of how heis handling his job, the highest since May, according to a new ABCNews/Washington Post poll and another conducted for CNN. Meanwhile,a Dec. 7-11 Pew Research Center poll found 40 percent of adultsblame Republican leaders for a “do-nothing” Congress, while 23percent blame Democrats.

Democrats yesterday called on Republicans to relent and pass theSenate bill.

“What we are dealing with today is a legislative tantrum,” saidRepresentative Earl Blumenauer, an Oregon Democrat.

Most lawmakers agree that the tax cut should be extended through2012. They differ on how to cover the cost to the Treasury and onwhat other policy changes they want to accompany the tax cut.Senate Democrats want to pay part of its cost with a surtax onincome exceeding $1 million, which Republicans oppose, and HouseRepublicans have voted to pay for the bill through such measures asfreezing federal civilian pay.

The power struggle is notable because in the past week Democratsand Republicans made progress in reaching agreement on thetwo-month plan, which would give them time for negotiations on alonger-term proposal when they return from the holiday recess.Senate Republican leader Mitch McConnell worked out the short-termmeasure with Reid, which was backed by 39 Republicans in the 89-10Senate vote for passage.

Republican Senators Richard Lugar of Indiana, Scott Brown ofMassachusetts, Olympia Snowe of Maine and Dean Heller of Nevadahave criticized the actions of their House counterparts.

“It angers me that House Republicans would rather continueplaying politics than find solutions,” Brown said in a statementyesterday. “Their actions will hurt American families and bedetrimental to our fragile economy.”

The impasse could hurt consumer spending and economic growth. Inaddition to the payroll tax cut, expanded unemployment benefitswill expire, and doctors would receive smaller Medicarereimbursements starting in January.

Economic Growth

Failure to enact the legislation would reduce economic growth by1.5 percentage points in the first half of 2012, according to aforecast by Michael Feroli, chief U.S. economist at JPMorgan Chase& Co. in New York.

House Republicans maintain that a short-term extension wouldn'tprovide the certainty that businesses need for planning and wouldcause administrative hassles for payroll providers andemployers.

“Our economy is too weak and the American people have beenstruggling for far too long” for Congress to come up short of anagreement, said Representative Dave Camp, a Michigan Republican andchairman of the tax-writing Ways and Means Committee. “There's noreason why we can't resolve the differences between theHouse-Senate versions before the end of the year.”

Republicans say there is still time to negotiate an agreement inthe conference committee the House voted to set up yesterday.Boehner appointed to the panel Republican Representatives Camp,Kevin Brady of Texas, Renee Ellmers of North Carolina, Nan Hayworthof New York, Tom Price of Georgia, Tom Reed of New York, Fred Uptonof Michigan and Greg Walden of Oregon.

A schedule announcement from the office of Majority Leader EricCantor said House members would recess, though negotiators andHouse leaders will be available to consider a conference. Memberscould be called back to Washington with 24 hours notice, theannouncement said.

Democrats maintain that the best way to provide certainty forbusinesses would be to pass the two-month extension and then workon the longer-term proposal.

In a statement issued after yesterday's vote, Reid called theHouse action “unconscionable.”

“As the clock ticks towards a middle-class tax hike, I wouldimplore Speaker Boehner to listen to the sensible SenateRepublicans and courageous House Republicans who are calling on himto take the responsible path,” Reid said.

Some Democrats disputed the Republican assertion that both sideswere close to an agreement that could avert the tax cut fromlapsing.

“We just watched the supercommittee made up of three membersfrom each caucus sit for eight weeks and come up with absolutelynothing” on deficit reduction, McDermott said. “Why would theythink having a conference committee on this issue is going to comeup with anything when the goal of the Republicans is to never makethe president look good?”

Bloomberg News

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