House and Senate negotiators have released a conference committee report spelling out several of the provisions of the payroll tax cut extension legislation, which also extends unemployment benefits and the “doc fix” for Medicare reimbursements for physicians.
The bill would extend the 2 percentage point cut in Social Security and Medicare withholding taxes to 4.2 percent through the end of the year.
The payroll tax cut provision would put a full $1,000 in the pockets of the typical American family over the course of 2012, according to the office of Senate Finance Committee Chairman Max Baucus, D-Mont.
Under current law, the employee-side Social Security tax equals 6.2 percent of the first $110,100 of wages, and the self-employment side equals 12.4 percent of such self-employment income. In December 2010, Congress reduced these tax rates by two percentage points during 2011. This meant that employees paid only 4.2 percent on wages and self-employed individuals paid only 10.4 percent on self-employment income.
The recently enacted Temporary Payroll Tax Cut Continuation Act of 2011 extended this holiday through February 2012. It capped the amount of compensation eligible for the holiday at $18,350 so that high-income workers were not able to claim the tax cut on all of their taxable wages, while other workers were not. This cap is not necessary if the payroll tax holiday is extended through the entire year. The conference committee agreement extends the payroll tax holiday through the end of 2012 and repeals the $18,350 cap. The estimated cost of this provision is $93.219 billion over 11 years.
The bill also includes a compromise on unemployment insurance that would eventually shrink the maximum number of weeks from 99 to 73 in some states. However, the change would happen gradually to ease the blow for the long-term unemployed.
The conference report guarantees up to 89 or 99 weeks of unemployment insurance through May, depending on the state; up to 79 weeks through August; and up to 73 weeks through December. This is intended to ensure that the economically hardest-hit areas get the help that families need to cover their bills and exceeds President Obama’s unemployment insurance proposal, giving more support to the states and communities in the greatest need and helping to prevent layoffs.
According to the press office for House Democrats on the Ways and Means Committee, from March through May, the level of unemployment insurance benefits would continue equal to an extension of current law, and high-unemployment states losing benefits under the Extended Benefits program would get an extra 10 weeks. Between 89 and 99 weeks of total unemployment benefits would be available in high unemployment states between the Emergency Unemployment Compensation program and the Extended Benefits program. From June through August, the unemployment rate requirement would increase in three of the four tiers of the Emergency Unemployment Compensation program. Up to 79 weeks of total benefits would be available in high-unemployment states with a few states continuing to receive additional EB weeks as under current law.
From September through December, EUC benefits would be reduced by six weeks in all states. This would cap total unemployment benefits at 73 weeks by this fall.
The bill also puts in place some of the demands of Republicans for reforms in the unemployment insurance program, aside from the reduction in weeks. One provision would require an unemployment insurance beneficiary to be able to work, available to work and actively seeking work.
Another provision would give states the flexibility to promote the re-employment of unemployed workers. This provision provides that the Secretary of Labor could enter into agreements with up to 10 states for demonstration projects designed to assist and expedite the re-employment of the long-term unemployed. The waivers are restricted to only two uses for wage subsidies or for disbursements to employers up to the individual’s benefit amount. The employer must pay wages above the individual’s benefit amount. States would be required to submit an application to the Secretary of Labor generally describing the demonstration project and its duration. All demonstration projects must be completed within three years. This program would be voluntary
Another provision would provide for better recovery of overpayments of unemployment benefits by changing the statutory language from “may” to “shall” in the collection of state and federal overpayments. This provision would save unemployment insurance dollars by directing states to collect overpayments, but also maintains the hardship exemptions in states.
One of the most controversial proposals from Republican lawmakers was to require mandatory drug testing. While the bill would not permit blanket drug testing of unemployment insurance recipients, it does provide for some testing, but limited to only to those who have lost their jobs because of unlawful use of a controlled substance and those seeking employment in occupations generally requiring a drug test as regulated by the Secretary of Labor.
Consistent with current law that eligibility for benefits be based on the “fact or cause” of unemployment, the provision sets forth that states may enact legislation to require an applicant to submit to and pass a drug test for the unlawful use of controlled substances only under the following conditions: 1) the individual has been terminated from their most recent employment because of the unlawful use of controlled substances, or 2) the individual’s only suitable work involves employment in an occupation, as determined by regulations issued by the Secretary of Labor, that regularly conducts drug testing. This provision is consistent with the federal law requirement that eligibility be based on the “fact or cause” of unemployment, since the only circumstances under which drug testing would be permitted are related to the “fact or cause” or unemployment.
However, the bill does not require unemployment recipients to have a high school diploma or be enrolled in a Graduate Equivalency Degree program, as some Republican lawmakers had proposed.
Other Republican-backed offsets for the Medicare reimbursement “doc fix” have also been dropped in the conference report. The agreement includes no Medicare beneficiary cuts, no means testing of Medicare recipients, and no “true up” that would have affected many working families by making them pay back excess health care tax credits given to them under the health care reform law. The bill only uses health offsets for health care spending, according to the office of House Ways and Committee ranking member Sander Levin, D-Mich.
Under the “doc fix” extension, seniors would have continued access to their doctors by fixing the Sustainable Growth Rate in Medicare physician reimbursements through the end of the year. Medicare physician payment rates are scheduled to be reduced by 27.4 percent on March 1, 2012. This provision would avoid that reduction and extend current Medicare payment rates through Dec. 31, 2012. The estimated cost of this provision is $17.3 billion over 11 years.
The agreement is paid for through spectrum offsets, a small change only to new government employee pension contributions, and health care offsets that fix technical errors and reduce spending on providers and corporations to ensure Medicare patients continue to have access to their doctors. The agreement would preserve Americans’ access to health care and does not include any cuts to Medicare beneficiaries.
The conference agreement provides that contributions would increase by 2.3 percentage points only for employees joining the federal service after Dec. 31, 2012 with less than five years of service as of the end of 2012. Corresponding increases in employee contributions would be made for employees in the CIA and Foreign Service pension systems. No change would be made to pension benefits. The conference agreement does not affect current federal workers’ pension contributions or benefits. Members of Congress and congressional employees entering service after Dec. 31, 2012 with less than five years of creditable civilian service would have their contributions and benefits determined at the same rate as other new federal employees. This provision is estimated to raise $15 billion over the next 11 years.
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