The House last week passed an extension of the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 (see “House Passed Bill for Payroll Tax Cut Extension“), which provides a payroll tax cut for employees, reducing their Social Security tax withholding rate from 6.2% to 4.2% of wages paid (see “IRS Releases Pay Withholding Change Guidance“).
The Associated Press (AP) reports that Democratic and GOP leaders opted for the short-term extension of the payroll tax and jobless benefits measure after failing to agree on big enough spending cuts to pay for a full-year renewal. The $33 billion cost of the $1 trillion-plus catchall budget bill that wraps together the day-to-day budgets for 10 Cabinet departments and military operations in Iraq and Afghanistan would be covered by raising fees on new mortgages backed by Fannie Mae and Freddie Mac.
The White House says the fee would increase the monthly cost of a typical $220,000 mortgage by almost $15 a month; over 30 years, the fees would increase the total cost of such a mortgage by more than $5,000, according to the AP. In contrast, a worker making a $100,000 salary would reap a tax cut of about $330 through the two-month extension of the payroll tax cut. A worker with a typical $50,000 salary would get just a $165 tax cut.
Officials said that in private talks, the two sides had hoped to reach agreement on the full one-year extension of the payroll tax cut and unemployment benefits that Obama had made the centerpiece of the jobs program he submitted to Congress last fall, but those efforts failed when the two sides could not agree on enough offsetting cuts to blunt the measure’s impact on the debt.
The White House has signaled that President Obama will sign the bill.