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Lower payroll tax rate safe

By Kay Bell · Bankrate.com
Friday, December 23, 2011
Posted: 11 am ET

The 4.2 percent payroll tax rate, two percentage points lower than the usual rate collected from workers to pay for Social Security, will remain in place through Feb. 29, 2012.

Now the House and Senate must work on a way to keep the lower payroll tax rate effective through all of 2012.

The two-month extension was officially approved this morning, just two days after the House rejected a similar plan by the Senate.

Earlier this week, Republican hard-line spending cut advocates -- you might have heard of them; they're called Tea Party members -- forced the House Republican leadership to abandon the Senate compromise.

That meant that the payroll tax cut extension, along with short-term extensions of unemployment benefits and the payment amount to doctors treating Medicare patients, would end on Dec. 31.

But it only took 48 hours for pressure from Republican senators and political consultants, the media (the staunchly conservative Wall Street Journal called the House move a "fiasco") and, of course, Americans facing loss of the benefits or tax break to make the reluctant representatives change their minds.

President Barack Obama is expected to sign the new bill today before he heads to Hawaii to join his family for what's left of the holidays.

Despite the backtracking, the House GOP can point to two wins in the  new $33 billion package.

It also requires the president to act within 60 days on a permit for the Keystone XL oil pipeline. He wanted to put off any decision on the project, which is opposed by environmentalists and farmers worried about how it might affect water for their crops, until 2013.

And the extension bill prevents small businesses from having to redo their payroll tax collection system for just the two-month extension. The congressional assumption is that the rate will soon be for a full year.

But judging from this latest fight, the efforts of a House and Senate conference committee to craft yet another, longer extension of the payroll tax and other laws is likely to be as combative as this week's battle.

Still, Congress has at least made Christmas a little merrier for the 160 million workers who won't see their payroll taxes increase next year, not to mention the millions depending on unemployment payments.

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