H.R. XXTemporary Payroll Tax Cut Continuation: Temporary Payroll Tax Cut Continuation Act of 2011

H.R. XXTemporary

Temporary Payroll Tax Cut Continuation Act of 2011

Sponsor
Rep. Dave Camp

Date
December 23, 2011 (112th Congress, 1st Session)

Staff Contact
Communications

Floor Situation

On Friday, December 23, 2011, the House is expected to consider the Temporary Payroll Tax Cut Continuation Act of 2011.  The bill was introduced by Rep. Dave Camp (R-MI) on December 22, 2011, and referred to the Committee on Ways and Means.

Bill Summary

The legislation would provide a two-month extension of the current payroll tax rates and federally funded Unemployment Insurance (UI) benefits, as well as a two-month delay in the implementation of the Medicare Sustainable Growth Rate (the so-called “Doc Fix”). The bill would extend these provisions of current law through February 29, 2012. The bill would offset these provisions by increasing fees charged by government-sponsored enterprises (GSEs) to lenders for assuming the credit risk on loans in the secondary mortgage market.  In addition, the bill would require the President to make a determination on a permit for the Keystone XL pipeline within 60 days.  The bill would differ from Senate-approved legislation by altering the enforcement of a cap on taxable Social Security income subject to payroll tax holiday rates during the two month span covered by the payroll tax holiday extension. This change would help minimize difficulties businesses might experience implementing the short-term, two-month tax cut extension.

According to CBO’s analysis of similar provisions contained in the Senate amendment to H.R. 3630, the two-month extension of provisions in the legislation would result in a deficit increase of $32.732 billion. The increase in GSE fees used to offset the bill would reduce the deficit by $35.7 billion.  Thus, the bill would result in a deficit reduction of $2.968 billion over ten years.  

Extensions

Extending the Payroll Tax Reduction: The bill would extend the current payroll tax rate reduction, which lowers the standard Social Security payroll tax rate by two percentage points for employees, for two months, through February 29, 2012.  The bill would extend the current rate of 4.2 percent for employees, and 10.4 percent for the self-employed. The bill would make no changes to the payroll tax rate for employers (6.2 percent).  Prior to 2011, employees and employers each paid 6.2 percent of covered earnings (for a total of 12.4 percent) up to an annual income limit.  The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 reduced the FICA tax rate for employees by two percentage points for calendar year 2011.  The bill would require amounts to “be transferred from the general fund at such times and in such manner as to replicate to the extent possible the transfers which would have occurred to such Trust Fund had such amendments not been enacted.”  According to CBO’s analysis of a similar provision in H.R. 3630, this would reduce revenue and thus increase the deficit by $20.4 billion.

The bill would change a provision of the Senate bill that established a Social Security Taxable Wage limit of $18,350 for the two month period covered by the extension. Under the Senate bill, any income above that level earned during the two month period would be subject to the regular 6.2 percent tax rate. The burden of adjusting that tax rate and subsequent withholdings would fall on employers under the Senate bill. According to the National Payroll Reporting Consortium, the taxable wage limit in the Senate bill would be difficult for businesses to implement in such a short amount of time and “could create substantial problems, confusion and costs affecting a significant percentage of U.S. employers and employees.”  Instead of requiring businesses to comply with the cap on income earned during the extension period by altering their withholdings, this legislation would require a taxpayer to repay any payroll tax relief on wages in excess of $18,350 earned between January 1 and February 29.  A taxpayer would still be subject to the lower 4.2 percent rate for all income, but any income earned above $18,350 during this period would be subject to a 2 percent tax in order to recover any excess benefits. The change would help to make tax compliance easier for businesses under the extension. 

Extending Unemployment Insurance Benefits:  The bill would extend federally funded benefits under the Emergency Unemployment Compensation (EUC) and the Extended Benefit (EB) programs for two months, though February 29, 2012. Under the bill, UI would be available for up to 99 weeks in certain states with high unemployment.  The bill would maintain the current maximum amount of time total benefits could be distributed in states with high unemployment at 99 weeks.  According to CBO’s analysis of a similar provision in H.R. 3630, this would increase spending and thus the deficit by $8.39 billion.

Medicare Physician Payment Rates: This provision would delay a 27.4 percent cut in Medicare physician payment rates slated to begin on January 1, 2012, for two months, through February 29, 2012. According to CBO’s analysis of a similar provision in H.R. 3630, this would increase spending and thus the deficit by $4.1 billion.

Physician Work Geographic Adjustment: This provision would extend, through February 29, 2012, the current floor used in calculating the portion of Medicare physician payments that accounts for the geographic area where a physician practices.  This provision would increase physician payment rates in roughly 54 of the Medicare program’s 89 geographic areas.

Outpatient Therapy Caps: This provision would extend the therapy caps exceptions process through February 29, 2012, with modifications that will require that the physician reviewing the therapy plan of care be detailed on the claim, reject all claims above the spending cap that do not include the proper billing modifier, and provide for a manual review of all claims for high cost beneficiaries to ensure that only medically necessary services are being provided.  Furthermore, the spending caps ($1,880 in 2012), which have been in effect since 2006, would be extended to the hospital outpatient department setting to prevent a shift in the site of service to higher cost settings once enforcement of the current exceptions process begins.  Exempting these services in the HOPD setting made sense when the hard therapy cap was in place, but it no longer makes sense with the exceptions process.

Ambulance Add-On Payments:  This provision would extend through February 29, 2012, the following add-on payments:  2 percent for urban ground ambulance services, 3 percent for rural ground ambulance services, and an increase to the base rate for ambulance trips originating in qualified “super rural” areas as calculated by the Secretary (currently 22.6 percent).

Qualified Individual (QI) Program: This provision would extend the QI program, which provides federal reimbursement for states to cover Part B premiums for seniors with incomes between 120 and 135 percent of poverty, through February 29, 2012.  The provision would reduce the capped allotment states receive to administer the program from $1 billion in 2011 to $730 million in 2012, which is anticipated to still fully fund the program.

Extension of Transitional Medical Assistance (TMA):  This provision would provide for a one-year extension of TMA, through February 29, 2012, for low-income families transitioning into employment. In addition, this provision ensures that only those individuals with incomes below 185 percent of the federal poverty level (FPL) can qualify for TMA benefits.

TANF Extension:  The bill would extend the authorization of the Temporary Assistance for Needy Families (TANF) state block grant program at current level of $16.5 billion annually, through February 29, 2012.  The legislation does not include a prohibition against welfare funds from being accessed in strip clubs, liquor stores, and casinos by blocking welfare EBT cards from working in ATMs at these locations.

Offset

GSE Guarantee Fees Offset:  The bill would increase guarantee fees charged by the government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac to lenders for assuming the credit risk on the loans GSEs purchase in the secondary mortgage market.  In addition, the bill would increase the guarantee fees charged by the Federal Housing Administration (FHA) as well, which the House bill did not. The bill would increase these fees by 10 basis points, or one-tenth of one percent, over 2011 levels.  These fees are in effect a premium to guarantee the repayment of principal and interest on those securities, insuring Mortgage Backed Securities (MBS) investors from the risk that the securities will default. The increase is to be phased-in over the next two years.  According to CBO, this provision would increase revenue and thus reduce the deficit by $35.7 billion. 

Other Provisions

Keystone XL Pipeline:  The bill would require the President to issue a permit for the Keystone XL pipeline unless he determines that the pipeline would not serve the national interest.  The permit would be required within 60 days of enactment of this Act. If the President makes such a finding he would be required to submit a report to Congress providing justification for such a determination. Any permit issued under this section would be required to comply with all applicable Federal and state laws and would require the reconsideration of routing within the State of Nebraska.

Cost

According to CBO’s analysis of similar provisions contained in the Senate amendment to H.R. 3630, the two-month extension of provisions in the legislation would result in a deficit increase of $32.732 billion. The increase in GSE fees used to offset the bill would reduce the deficit by $35.7 billion.  Thus, the bill would result in a deficit reduction of $2.968 billion over ten years.