Congress passes payroll tax cut extension; raises pension contribution for new federal workers
Today, the House and Senate passed a bill (H.R. 3630) that extends the two percent reduction in the Social Security payroll tax for the entire year. Completing the legislative trifecta, the bill also continues extended unemployment insurance benefits, and fixes (at least for this year) the Medicare doctor reimbursement rate. Both Houses passed the bill with bipartisan majorities: 293-132 in the House and 60-36 in the Senate. The bill now goes to the president who is expected to sign it quickly.
The vote ends what had promised to be another drawn out battle between congressional Republicans and Democrats on tax and funding issues. In December, Congress passed a two-month extension of the payroll tax cut, unemployment benefits, and the so-called “doc fix.” With less than two weeks remaining before that extension ended, many feared a continuing legislative stalemate (over whether or not the payroll tax cut should be offset) would result in a tax increase for 160 million Americans.
But, House and Senate negotiators finally reached agreement in the highly politically-charged environment, when House Republicans relented on their insistence that the payroll tax reduction be offset with budget cuts. In return Democrats agreed to changes in unemployment benefits eligibility and to accept a requirement that new federal employees contribute more to their pension plan.
The bill, estimated to cost as much as $150 billion, continues the two percentage point reduction in the payroll tax from 6.2 to 4.2 percent through the end of this year. This would be the second year that this cut (saving an average family of four about $1,000 per year) has been in place. Unemployment benefits would be paid for 63 weeks (73 weeks in states hardest hit by the recession) rather than the current 99 week period. In addition, the bill would keep recipients from getting to their unemployment benefits for use in casinos, liquor stores, and other select places. In extending the “doc fix” provision for another year, the bill would prevent a 27 percent reduction in Medicare reimbursements to doctors.
To provide some offset for the costs of the bill, negotiators agreed to a provision that would increase the federal employee pension contribution from the current .8 percent to 3.1 percent for new workers. Rehired employees with less than five years of prior service are also affected. Some Democrat lawmakers had strongly objected to a proposal to set the contribution rate at 3.1 percent for both current and new federal employees. The compromise requiring an increase only for new employees after 2012 sealed the deal for final agreement.
But, this agreement does not preclude a pension contribution increase for current federal employees. Under a proposal in President Obama’s FY2013 budget request, all federal employee pension contributions would increase from .8 percent to 2 percent over a three-year period.
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