Payroll tax deal close: Why did Republicans back down? (+video)

After months of impasse, Congress is on track to extend a payroll tax cut and other provisions affecting millions Americans that were set to expire Feb. 29.

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Congressional leaders are gauging lawmakers' reactions to a tentative deal extending a 2 percentage-point payroll tax cut and extra jobless benefits through 2012. Speaker of the House John Boehner said the deal was done to end political games.

House Republicans wanted offsets, or spending cuts, to make up for the nearly $100 billion cost of extending the tax cut holiday through 2012. 

But the politics wasn't working out for Republicans. On Monday, House speaker John Boehner, flanked by majority leader Eric Cantor of Virginia and majority whip Kevin McCarthy of California, offered to back an extension of the payroll tax holiday without offsets. 

House Republican leaders faced their caucus late Tuesday with a blunt message: We got the policy right but the politics wrong – and now it’s time to move on, they said, according to members at the closed meeting.

“This hasn’t been an exercise in public relations that we were winning, and we need to get this behind us so we can get on to something new,” said nine-term Rep. Steven LaTourette (R) of Ohio, summarizing the pitch from leadership.

Some Republicans left Tuesday's closed meeting noncommittal on whether they could back a comprehensive deal, unless it involved significant reform or offsets for the other elements of the package: extending unemployment insurance and blocking an automatic 27 percent drop in reimbursement rates for physicians treating Medicare patients – the so-called “doc fix.”

The draft deal keeps the employees’ share of the payroll tax at its current 4.2 percent level. Should the measure fail to pass, employees would see their payroll taxes rise to a 6.2 percent level, equivalent to about $40 in salary every two weeks for the average worker. 

Democrats had proposed offsetting the nearly $100 billion cost of the extension by raising taxes on the highest income Americans.

The deal also extends jobless benefits for the long-term unemployed, although not for the full 99 weeks under current law. Republicans had called for a top benefit at 59 weeks. The compromise deal, not yet confirmed, would return the maximum benefit to previous historic levels for an economic downturn for about 73 weeks.

Lawmakers close to the negotiations say the extension of benefits will be paid for by $50 billion in mixed revenues, including a hike in contributions from federal employees to their pensions and new revenue from the sale of broadcast spectrum to wireless companies. States with high unemployment rates may be eligible for more weeks of coverage.

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