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Full Details of New Payroll Tax Cut Legislation Released

OK, so we have the full language now of the compromise measure for the payroll tax cut, and there are basically three components to the pay-for for the legislation, which now only increases and extends the employee side of the tax cut (a total of a 3.1% tax cut, which functions as a 3.1% wage increase up to the $106,000 in salary affected by the payroll tax) and costs around $185 billion for 2012.

1) The legislation would increase fees that Fannie Mae and Freddie Mac charge to guarantee loans. This proposal was in the President’s deficit plan from September and also part of the Super Committee negotiations, apparently. This pay-for will raise $39.1 billion, and entirely from mortgage originators who sell their loans to Fannie and Freddie. It’s over a ten-year timeline and the increase cannot be more than 12.5 basis points (.125%) every year, so it’s not onerous. Increasing fees is seen as a way to wean the market off of Fannie and Freddie, and as Pat Toomey said, this would come closer to an actual market rate for the guarantees Fannie and Freddie provide.

2) The legislation would include the proposal in last week’s Republican legislation to make millionaires ineligible for food stamps and unemployment insurance. I don’t know if it stops millionaires from sleeping under bridges, either. Hilariously, Bob Casey, who announced this proposal, didn’t even bother to score it in his press release, presumably because the approximate savings from stopping millionaires to access food stamps and unemployment benefits would be around $0.00. Maybe Tom Coburn will tell me different. I’d love to see a CBO score.

3) The legislation continues to have a surtax on the aforementioned millionaires, but because of the changes, this surtax is reduced to 1.9%. It would also sunset after ten years, so the surtax would only pay for this legislation and that’s it. It would start in 2013, so there would be no cost next year, when the payroll tax cut would be in operation.

This is from the release:

“As the clock continues to tick down, it is imperative that we come together now on a middle income tax cut,” said Senator Casey. “The legislation is fully paid for and includes measures that have received bipartisan support in the past. It is time to act to help working families in Pennsylvania and across the country get back on their feet and jump start the economy. We can no longer afford to jeopardize working families in order to protect the wealthiest few.”

I think these changes actually improve the bill. The employer-side tax cut was a waste of money. Increasing Fannie and Freddie fees makes sense, generally speaking. And the millionaire’s surtax, a good enough way to pay for this if you have to pay for this, remains.

But no matter how many times Democrats gleefully remind the media that Republicans support extending the tax cut, and that their entire M.O. is bound up in lower taxes, because of that millionaire’s surtax, and because they want the economy to degrade, they won’t pass this bill when it comes up for a vote later in the week.

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David Dayen

David Dayen