Paul Kane lays out the background at The Washington Post:
All sides agree that it will be extended and there will be no repeat of a pre-Christmas showdown over the tax benefit that created bitter political divisions within [the] party's ranks. As part of a December 2010 tax compromise, which extended the 2001 and 2003 tax cuts through the end of this year, President Obama won inclusion of the payroll tax cut that dropped individuals' withholding rate to 4.2 percent from 6.2 percent, giving the average worker an extra $80 a month. Republicans have questioned the efficacy of the plan, while others have lamented its effect on Social Security's future. But Obama trumpeted the idea as a way to put cash quickly into workers' pockets, helping to fuel the improving economy, and in his September proposal he offered to extend the holiday through this year and expand it for workers and employers.Jonathan Bernstein predicts that this portends more spending in the future:
While most of his nearly $450 billion in jobs initiatives fell by the wayside, the payroll tax holiday has survived. When a full-year extension of the existing tax holiday could not be agreed upon in December, the Senate passed, by a wide bipartisan vote, a two-month extension, but House Republicans rebelled. They suggested it was bad economic policy to temporarily adjust payroll taxes, and, more important, many of the 89 Republican freshman lawmakers said it was just the sort of half-a-loaf deal that they were swept into office to correct.
...This is almost certainly a preview of what eventually happens on the military spending cuts in the scheduled sequester under the debt limit deal. Recall that the Budget Control Act set up a "Supercommittee" to come up with deficit reductions, and when that (predictably) failed, the next step is a future sequestration that would take all of the deficit reductions out of the spending side, very much including military spending. Already, hawkish Republicans have suggested trading in those defense cuts for something else. Eventually, they'll do there what they did today: they'll propose just eliminating the defense cuts with no offset. The question then will be whether Democrats have the leverage (and the inclination) to trade cuts to Democratic priorities for cuts in defense.And if the automatic cuts don't happen? As Doug Mataconis explains, that could affect revenue projections in a way that triggers another standoff over the debt ceiling before the 2012 presidential election:
A debt-ceiling fight right before an election would likely be a disaster. As I noted when we saw this last year, voting to increase the debt ceiling is the one vote that no member of Congress really wants to cast because it lays bare the Federal Government's fiscal problems, and because it is easy for a political opponent to demagogue. Explaining why voting to increase the debt ceiling is, in reality, a fiscally responsible move because it means authorizing the government to pay for things that Congress has already authorized is hard.
Denouncing a Congressman or Senator for voting to "raise the debt" is very, very easy and you can guarantee that this is exactly what we'd see in the event Congress had to vote on this issue before November. The debt kamikazes would be back in full force, and the world would be sitting back and watching while the United States argued down to the wire over an issue that shouldn't even be in doubt.
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