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November 30, 2015

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Senate votes to extend payroll tax cuts and unemployment insurance

New homebuyers and those refinancing may not be happy with compromise

WASHINGTON — The Senate voted this morning to ensure payroll tax cuts don’t increase and unemployment insurance benefits don’t end as the new year begins.

The flip side is that they’re paying for the two-month long extension of these programs by socking new homebuyers and people refinancing their home loans with a new fee.

For weeks, Republicans and Democrats couldn’t agree on how to pay for a measure to extend the current payroll tax. The rate for the special category of taxes, paid directly into the Social Security trust fund, is usually 6.2 percent, but has been at 4.2 percent for the last year. Lawmakers wanted to offset the cost to ensure that the tax cut extension wouldn’t drain the Social Security fund.

Democrats wanted to put a surtax on millionaires’ higher incomes; Republicans wanted to increase millionaires’ Medicare payments and freeze federal workers’ payroll.

What the party leaders finally shook hands on is a measure that may surprise some Nevadans.

The bill establishes a new mortgage insurance fee, equivalent to about $15 extra per month for every $200,000 of mortgage a homeowner qualifies for — or $180 per year per $200,000 of new mortgage — to all loans originating with government lenders. It marginally raises the cost of home-buying in Nevada, where the recession and mortgage crisis have left many neighborhoods half empty.

It’s not likely to scare away homebuyers — and many will see it as a worthwhile trade for the continuation of payroll tax cuts (worth about $1,000 per year to the average Nevada family) and unemployment benefits (worth up to $393 per week for Nevada workers.)

“The No. 1 thing that is hurting the housing market is lack of demand,” Sen. Charles Schumer, D-New York, said Saturday after the bill passed. “The No. 1 thing that’s creating a lack of demand is lack of middle class income in families’ pockets. You’re doing a lot more to help the housing market than hurt the housing market.”

The new mortgage fee will be applied to all loans originating with the Federal Housing Administration for 10 years, and with Fannie Mae or Freddie Mac permanently. New homeowners and those who refinance would pay the extra insurance charge to the banks, but for the next 10 years the funds would transferred directly to the U.S. Treasury Department to offset the two-month long payroll tax and unemployment insurance extension.

Democratic aides were selling the deal during the vote today as the lesser of present evils, because everyone is eyeing a phase-out of Fannie Mae and Freddie Mac anyway. Fannie Mae and Freddie Mac, which used to be government-backed and are now government-owned, were at the center of the subprime mortgage crisis.

The fees are a gesture toward making private lenders more competitive with the government lenders, which are heavily subsidized. But most private lenders remain significantly pricier than the government options, even after tacking $15 onto the monthly charges.

Additionally, if Fannie Mae and Freddie Mac aren’t dismantled in the next decade, the permanent fees would start to go directly toward the lenders, which would serve to strengthen those institutions.

Lawmakers also would not commit that additional mortgage-associated fees wouldn’t be used to pay for more extensions of payroll tax cuts and unemployment insurance, though Schumer said that they’ve “never seen (a higher increase) on the table.”

The fight about how to pay for payroll tax cuts and unemployment insurance is due for a second act almost immediately after Congress returns to Washington after the holidays.

Saturday’s bill — which has yet to pass the House — is only good for 60 days, meaning lawmakers will be back to the drawing board in February to try to cobble together a way forward for the rest of the year.

“It’s a fight we welcome,” Schumer said. “Republicans will hold back the middle class tax break at their peril.”

Republicans have been divided on the payroll tax cut. While an overwhelming majority of Republican senators voted to pass it as part of a larger package that included unemployment benefit and a direction to President Barack Obama to render a decision on the Keystone XL oil pipeline from Canada to the Gulf Coast by the time the bill’s 60 days are up, not as many turned out in the past few weeks to vote for a payroll tax cut alternative offered by one of their own, Nevada Sen. Dean Heller.

Dean Heller

Dean Heller

Heller has argued that continuing the payroll tax cut and unemployment benefits is critical for Nevada, and voted for the compromise bill Saturday, even though he would have liked it to have been longer.

“Times are tough, especially for Nevadans, and Congress did the right thing today by putting partisanship aside to help those who are looking for work and struggling to pay their bills,” he said in a statement after the vote. “However, these last-minute quick fixes cause too much instability. Congress should extend these benefits for the entire year.”

Democrats too want to see the payroll tax cut and unemployment programs — seen as having the biggest “bang for the buck” in terms of economic stimulus — extended through the end of 2012.

Which only means the fight is due for a encore performance.

Heller’s proposal was to pay for a payroll tax cut extension by freezing federal salaries, trimming the federal workforce and asking higher premiums from millionaire Medicare beneficiaries.

Democrats want to focus on millionaires too, but on their salaries, not their health care.

“My preference, and the preference of most Americans is that we ask the wealthiest to pay their fair share,” Obama said Saturday as he praised the Senate for passing a bill, but expressed his regrets they couldn’t come up with a longer-reaching solution.

The bill now goes to the House of Representatives, which comes back into session Monday.

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