Legislative History of the US Payroll Tax Bill - Research Paper Example

 Legislative History of the US Payroll Tax Bill Introduction: The Payroll Tax Bill was intended to extend tax relief for middle income earners and create job opportunities for the 8.6% unemployed Americans. At first, it was perceived as a political tool that would strengthen the performance record of the ruling Democrats since it came at the verge of an election year. However, economists deemed the agenda fit for public interest as it would ensure that payroll deductions do not revert to 6.2% (Calmes, 2011). Whereas a lot of political debates frustrated the Payroll Tax Bill, it successfully passed the Congress and Senate in a move that left the Republicans somewhat cynical over political ideologies to oust the Obama Administration. Specifically, the Congress Speaker John Boehner of Ohio acknowledged the bill as a necessary stimulation package that will empower the economic potential of 160 million Americans (Cowan & Younglai, 2011). However, the Dave Camp’s Bill did not escape substantial amendments especially when the Democrats knew pretty well that its passage needed at least a 60% approval of Senate. This paper therefore takes a critical analysis of the US Payroll Tax Bill from its introduction in 2010. In its chronology, the paper specifically examines the legislative history of this bill with a view to establish its importance and any consequences that could have befallen the country were it not passed. Lastly, this paper provides an account of the challenges faced by the committees and proponents of this bill prior its assent into law. Initial Introduction of the Payroll Tax Bill: In 2010, Obama appointed a committee lead by top financial technocrats Tim Geithner and Jack Lew to develop the Payroll Tax Bill package. This committee initiated a bipartisan negotiation with Republicans representatives to consider a 2% reduction of payroll tax deductions from 6.2% to 4.2%. In spite of the positive impacts envisaged in the payroll tax bill, Tim and Lew’s committee did not have an easy time convincing the Republicans to buy the two-tier idea (Camp, 2011a). The first proposal targeted a tax cut for middle income earners whose annual pay fell below $250,000. The second proposal covered upto a baseline of $1,000,000. At last, the committee agreed on a balanced scale of the bill which proceeded to the House of Representatives for legislative scrutiny. House Debates – First Session: In the first round of negotiations, both proposals went through the House-of-Representatives. The legislatures scrutinized the bills in view of its enlightened content that was seen to hold a lot of potential in boosting the ailing American economy. As a result, Congress passed the bill in the 1st session with unanimous approval of the two proposals brought by the Tim and Lew Committee. When the Payroll Tax Bill went to the Senate for further debate, some ideological tussle emerged between the two parties with Republicans Senators arguing that the bill was not well substantiated to cater for every angle of the economy. In particular, Senate purported that the bill was infringing the national deficit by adding additional burden on the General Funds. Moreover, Republican Senators held that until the Democrats harmonize the needs of all taxpayers with regards to the fate of large business corporations; they will not support the proposals. As such, the bill failed to garner the 60% prerequisite Senate approval. It only scored a mere 53 percent with Republican Senators demanding substantial amendments to cover the high income earners as well (Lewder & Smith, 2011). Committee Second Review: Since the Democrats could not afford to lose the battle in what they believe would improve the lives of Americans, Tim and Lew re-strategized with close consideration of disputed sections of the bill. On the other hand, the Republican representatives to the committee introduced a different political negotiation tool. They placed demands for the President to grant permit for the construction of the Keystone XL Pipeline in return of their support (Jones, 2011). This was bitterly detested as ill-hearted political compromise. The bill was returned to the drawing board to take into consideration some provisions that would square out the needs for a balanced reduction for every American as well as devolved consideration for the high income earners inclined in a well-thought strategy for job creation. However, the committee was forced to change the initially proposed two-year extension to one-year instead. This was a compromise suggested by republicans when pressure amounted to drop the Keystone project. As a result, the two parties reached a consensus on December 6, 2010 with a compromised transitory 1-year extension deal spanning through 2011 (Camp, 2011b; US Department of Treasury, 2011). Nevertheless, some Democrat critics such as Senator Bernie Sanders condemned the compromised tax deal. In addition, conservative Republicans and other Democratic purist also opposed the bill arguing that the high-income class should not benefit from tax cuts when they have greater potential of bridging the Federal deficit. In the same spirit, member of the infamous Tea Party also criticised the bill with backup support of prominent Republican presidential candidates and media legendaries such as Limbaugh Rush. Despite all these, the bill enjoyed a favourable majority support in both the Senate and Congress with a Yes vote count of 81-19 and 277-148 respectively (Kaster, 2011). A day later the President assented the Bill into law on December 17, 2010 in a ceremony absconded by wary Democrats. Reauthorization of the Payroll Tax Bill: Since the 2010 deal was set to expire by the end of the 2011, Obama reintroduced the bill in late 2011through the technical efforts of Dave Camp led Committee. In his arguments, the president believed that there was eminent need to buy time as the two chambers meditate on how to handle the looming increase of payroll tax to the original 6.2% (Francis, 2011). With the call for temporary extension, the incumbent payroll tax extension law needed not to be changed pending further debates to lay the funding strategy if it were to be extended for the rest of 2012. This time round, the deal passed Senate quite successively with a two months extension expiring by the end of February 2012. During the brainstorming period, the Republicans and a clique of Tea Party subscribers reverted to the Canadian pipeline tactic. According to §1002 (a) of the North American Energy security Act, Republicans pressed the President again to act upon the Keystone XL Pipeline within 60 days or the Democrats lose their bid for a 2012 Payroll Tax Extension (Johnson, 2009; GOP, 2011a). Nonetheless, the White House Committee protested the move by affirming that the Congress should never be used as a platform to settle political scores at the expense of national interest. Accordingly, Democrat Senator Charles Schumer reiterated that, “…such a deal would jeopardize public interest especially when its application for approval has been widely protested by environmental experts” (Calmes, 2011 para.6). Senate Debate: According to Senate, the new bid for extension was perpetually a short-term call set to expire in February. In the same light, the Camp Committee continued consultations yielded political pressure for a bipartisan agreement to have the Bill extended for the rest of 2012. However, Republicans Representatives declined the move and adopted the 2-months initial deal that saw Senate pass the bill on December 17, 2011. Thus, Senate introduced the Payroll Tax Cut Continuation Act 2011 extending tax cuts to February 29, 2012 (GOP, 2011b). The amended Senate version capped the tax at a threshold income of $106,000 per annum. Congressional Stage Debate: Despite the Senate breakthrough, John Boehner remained hesitant to concede the unity calls of Senator Mitch McConnell of Kentucky. As a result, Boehner mobilized the Congress in a House poll of December 20, 2011 that rejected the Senate bill by a simple majority vote of 229-193 (Lewder & Smith, 2011). To that end, Boehner’s House maintained that it would be better to consider the deal once and for all in a more extensive manner that will run through the year. At that point, the Democrats got a renewed spirit to pursue the one-year extension deal. The Payroll tax Extension Bill was then sent back to Senate. In the proposed new deal thereafter presented by the Dave Camp’s Democrat Committee to the Senate for a second consideration incorporated a yearlong plan that capped the tax to a full $110,100 income. This meant an average income of $18,350 for the extended 2 months with an extended 2% reduction on income of $116,000 through the year (Akalp, 2011). In addition, the Payroll Tax Extension Bill also apportioned a tax relief for companies that created new jobs for the unemployed population. Final Approval by Senate and Congress: With the new developments, the Democrats stood their ground in Senate not to allow unwarranted coercion into granting permit for Keystone XL project as they rallied support to win Republican support (Jones, 2011). Fortunately, the bill went through Senate and the Congressional Republicans were advised to drop their demands for the Canadian project for fears of creating a political morsel for Democrats in the December 2012 Polls. Thus, the Bill was endorsed by John Boehner and passed by majority congress vote. President Obama singed it into law on February 22, 2012 (Internal Revenue Service, 2012). The new bill will help average Americans save upto $1000 dollars a year. The unemployed beneficent would also not lose their jobless benefits of about 300 dollars per week. Other successful bits of this bill suggest that the country will have an increase in disposable that will boost the economic growth by 2.5% by the end of second-quarter of 2012FY. Through the corporate tax relief, the government hopes to provide indirect incentive that will help companies to absorb more people into their payroll thereby reduce the current 8.6percent jobless rate. Lastly, this tax cut extension will also raise mortgage premiums by approximately $15 per months aimed at encouraging private financing hence an increased growth in real estate economy. References Akalp, N. (2011). Five tax benefits of the American Jobs Act. Retrieved March 3, 2012 from: Calmes, J. (2011). Disagreements over the Payroll Tax Cut Impact on Social Security. Retrieved March 3, 2011 from: Camp, D. (2011a). 112th Congress First Session: Middle Class Tax Relief and Job Creation Act of 2011. Retrieved March 3, 2012 from: Camp, D. (2011b). 112th Congress Second Session: Middle Class Tax Relief and Job Creation Act of 2012. Cowan, R., & Younglai, R (2011). Congress passed the Payroll Tax Bill. Retrieved March 3, 2012 from: Dobestein, A. (2009). Understanding the Social Security Act: The foundation of social welfare for America in the twenty-first century. New York, NY: Oxford University Press. Francis, D. (2011). How Failure to Extend the US Payroll Tax Cut would affect American Consumers. Retrieved March 4, 2012 from: GOP, (2011a). Calendar No. 257 in the Senate of the United States: Middle Class Tax Relief and Job Creation Act of 2011.Retrieved March 4, 2012 from: GOP, (2011b). Amendments: Temporary Payroll Tax Cut Continuation Act of 2011. Retrieved March 4, 2012 from: Internal Revenue Service, IRS. (2012). Payroll Tax Cut Extended to the End of 201. Retrieved March 4, 2012 from: Johnson, D. (2009). The Laws that Shaped America: Fifteen acts of Congress and their lasting impact. London: Taylor & Francis. Jones, B. (2011). GOP Leader: Pipeline deal stays in the Payroll Tax Bill. Retrieved March 3, 2012 from: Kaster, C. (2011). Payroll Tax Cut Extension approved by US Congress. Lewder, D., & Smith, D. (2011) House Republicans oppose Senate Payroll Tax Bill. Retrieved March 3, 2012 from: US Department of Treasury, (2011). History of United States tax System: Evolution of the Social Security Fund. Retrieved March 4, 2012 from: Read More