Payroll tax cut: US Congress reaches deal

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Speaker of the House John Boehner announces a deal to extend the payroll tax cut and unemployment benefits 15 February 2012
Image caption,
Republicans had backed away from a condition that the extension must be offset by cuts elsewhere

A US congressional panel has reached a deal on extending a payroll tax cut, ending weeks of uncertainty.

The $150bn (£95.69bn) deal extends the tax cut until the end of 2012.

The House could approve the extension - which will affect 160m workers - by the end of the week, before Congress begins a week-long recess.

Agreement came after Republicans dropped calls for spending cuts to offset the expense, and Democrats put aside requests for other tax breaks.

The payroll tax sparked an impasse in Congress at the end of 2011.

The new deal is expected to provide workers with an extra $40 every two months.

'Moving forward'

The joint House-Senate panel has also agreed to extend unemployment benefits as part of the deal.

"We have reached an agreement and we're moving forward," said Republican Representative Dave Camp, who headed the negotiating committee.

Mr Camp said there were some technical details outstanding which would be sorted out by staff aides.

Extending the cut, which was originally passed in 2010, was part of a wide-ranging jobs plan launched by President Barack Obama in September 2011.

But the Republicans had opposed the plan as it had wanted spending cuts to pay for the tax reduction in order to avoid an increase in the federal debt.

Republicans had wanted to reduce the extension of unemployment benefits from 99 weeks to 59 weeks. The White House wanted a 79-week extension as a compromise - but the deal agreed is 73 weeks in states with the highest numbers of unemployed people.

Although states where unemployment is a key issue - such as Rhode Island and Nevada - will actually see more generous measures than under current law.

The Republicans also dropped a condition that potential recipients of unemployment benefits must be drug-tested first.

Another condition which was dropped was the requirement for those on low incomes who claimed child tax credit to possess social security numbers if they wanted government cheques.

However, under the terms of the tentative deal, there would still be a 2% point cut in the payroll tax which pays for federal social security pensions.

It would also renew benefits worth an average of $300 a week for the long term unemployed.


The cost of the measures will be part-financed by the auction of telecommunications spectrum to wireless companies and making new federal recruits contribute 2.3% of their pay towards their traditional defined benefit pensions.

The payroll tax had sparked an impasse in Congress at the end of 2011.

Republicans in the House were put on the defensive as 2011 drew to a close after negotiations broke down on how to pay for the cut.

Despite opposing tax rises in general, the Republican desire to ensure any renewal of the tax break was fully funded and did not add to the deficit saw the White House cast them as opponents of a middle-class tax cut.

After a climbdown by Republican House Speaker John Boehner, Republicans eventually agreed to a two-month extension while the House and Senate panel brokered a year-long deal.

Speaking to reporters after the new tentative deal was agreed Mr Boehner said the legislation is likely to be voted on by both houses at the end of the week.