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In surprise move, GOP leaders admit defeat in payroll tax battle

House GOP leaders had wanted to offset the cost of a payroll tax extension by spending cuts. But their decision Monday suggests that the political cost of a stalemate was too high.

By Staff writer / February 13, 2012

House Speaker John Boehner of Ohio (r.) and House majority leader Eric Cantor of Virginia, seen here on Capitol Hill in Washington Thursday, released a joint statement on the payroll tax Monday.

Charles Dharapak/AP

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Washington

In a surprise move, House Republican leaders on Monday backed off their demands in the battle over extending a payroll tax cut that affects some 160 million Americans.

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The move, which would keep payroll taxes at their current 4.2 percent rate through 2012, is expected to add another $83 billion to federal budget deficits. Republicans had wanted to offset that amount through spending cuts.

The House GOP has not given up its fight entirely. Other provisions set to expire Feb. 29 – extended unemployment insurance and a “fix” for a 27 percent mandated cut in reimbursement rates for doctors treating Medicare patients – remain stalled, especially over how to pay for them.

But had Republicans not yielded on the popular payroll tax break, the political costs could have been formidable, especially in an election year. 

“It’s a total capitulation,” says Stan Collender, a longtime congressional budget analyst, now with Qorvis Communications in Washington. House Speaker John “Boehner read the tea leaves and said, ‘I’m not going to do this again.’ ”

House Republicans took a pounding in the polls last December, as a struggle over how to pay for extending benefits was resolved at the 11th hour only after Speaker Boehner told his deeply divided caucus, in a conference call, that they had no option but to accept a two-month extension of the popular tax break – until Feb. 29 – and continue negotiations.

With most of the House already back in their home districts, the measure passed by unanimous consent.

Monday's decision by top GOP leaders to change course on the payroll tax issue still has to be sold to the House GOP caucus, which has held out for spending cuts to offset the full $160 billion package to extend the payroll tax, unemployment insurance, and "doc fix."

House GOP leader say they may schedule the payroll tax measure for a House vote later this week, “pending a conversation with our members.”

For many House conservatives, the payroll tax holiday is not, in fact, a tax cut, because the cost to the Social Security trust fund is to be fully offset by general fund tax dollars – or, given $1 trillion-plus deficits – by further borrowing.

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