Congress reaches deal on payroll tax cut and jobless benefits

Zachary Roth
·Senior National Affairs Reporter

The economy looks to be improving, but it's still far from healthy. So it's good news that Congress has come to a deal to make sure it doesn't suffer a hit it can't afford.

Lawmakers signed off Thursday morning on a $150 billion agreement that would leave in place through the end of 2012 the Social Security payroll tax cut, and extended unemployment benefits -- both of which were scheduled to expire at the end of the month.

The payroll tax cut, worth about $100 billion, reduces the amount that workers pay into Social Security, from 6.2 percent to 4.2 percent. For a worker making $50,000 a year, that's an extra $83 a month.

The jobless benefits extension will ensure that around 1.8 million long-term unemployed Americans aren't thrown off benefits at the end of the month. Still, it cuts the maximum time that a person can receive benefits from 99 to 73 weeks for states hardest hit by joblessness, and to 63 weeks in states that are faring better. It also allows states to conduct drug tests on people receiving benefits if they lost a previous job because they failed or refused to take a drug test -- something that advocates for the unemployed have described as stigmatizing and unnecessary (pdf).

The package, which also includes a fix to Medicare reimbursement rates to ensure that doctors who treat elderly patients don't see a major pay cut, is worth around $150 billion in all. But Republicans insisted that the jobless benefits extension and the Medicare fix -- together worth about $50 billion -- be offset with other cuts. Earlier this week, they dropped their initial demand that the payroll cut also be paid for -- a move that was crucial in leading to the breakthrough.

Had the payroll tax cut and the jobless benefits expired, the economic recovery would likely have taken a modest but real hit. Mark Zandi, the chief economist for Moody's, estimated recently that a failure to extend the measures would cause GDP growth to decline by about 0.7 percent, and the jobless rate to rise by around 0.3 percentage points.

Lawmakers are expected to vote on the package this week.

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