Bowing to pressure from fellow Republicans, a leading House Republican said Thursday he would introduce a bill Friday to extend the payroll tax cut and unemployment benefits for two months.

House Ways and Means Committee Chairman Dave Camp, R-Mich., said he would introduce a bill Friday to provide a two-month extension of the payroll tax holiday, unemployment benefits, reimbursements to doctors treating Medicare patients, and the Temporary Assistance for Needy Families welfare program.

“We heard the concerns of America’s job creators loud and clear, and we have taken the responsible action to address their needs,” Camp said in a statement. “Despite the Senate’s refusal to return to work and negotiate a longer-term bill in good faith with the House, we will not let their vacation harm these employers nor Americans struggling in this weak economy. This legislation fixes a critical flaw in the hastily passed Senate bill, which failed to provide employers with a workable mechanism with which to implement a partial-year payroll tax holiday.”

Camp pointed out that a number of small business groups, such as the National Federation of Independent Business, the Associated Building Contractors, the National Roofing Contractors Association, the Small Business Entrepreneurial Council, the Associated General Contractors, and the National Payroll Reporting Consortium, had all stated the Senate bill would add complexity, confusion and costs to employers, thereby harming job creation.

The new House bill corrects a flaw in the Senate provision by allowing employers to withhold employee payroll taxes at the reduced rate (4.2 percent) on all wages paid during the two-month period, subject only to the full 2012 wage base ($110,100) and without regard to the new $18,350 cap on wages earned through the end of February, according to a Ways and Means Committee spokesperson.

If an employee’s wages during the first two months of 2012 exceed $18,350 (two-twelfths of the wage base of $110,100), an amount equal to 2 percent of those excess wages would ultimately be recaptured on the worker’s individual tax return for 2012.  However, this rule would only apply if the payroll tax reduction is not extended for the remainder of 2012, and a conference committee is expected to convene soon in order to negotiate a full-year extension.

As a result of this modification to the Senate’s approach, employers would not have to comply with an unnecessary new burden and could instead devote their resources toward hiring new workers or increasing wages.

“However, a two-month fix is just that—a short-term patch,” said Camp. “America’s employers, families and Medicare doctors deserve long-term solutions.  When the Senate returns to work in January, we must finish the job and provide greater certainty for these policies.”

Earlier in the day, Speaker of the House John Boehner, R-Ohio, and House Majority Leader Eric Cantor, R-Va., continued to insist that the solution should be a one-year fix (see Obama and McConnell Urge Action on Payroll Tax Cut and Boehner under Pressure on Payroll Tax Cut Extension). But President Obama and Senate Minority Leader Mitch McConnell, R-Ken., encouraged House Republicans to agree to a short-term fix until Congress can return in January to negotiate a longer-term solution.

When Boehner announced the agreement on the two-month extension at the Capitol later in the day, he said, "This is not a time for celebration. This is a time to roll up our sleeves."

Another House Republican, Rep. Kevin Brady, R-Texas, who was appointed to the conference committee charged with reconciling the differences between the House and Senate passed payroll extension bills, noted that the House Republican leadership faced a tough dilemma in agreeing to a two-month extension while negotiators continue to seek a long-term solution.

“With Senators and the President unwilling to return from their vacations to negotiate with the House, we had a difficult decision to make with 160 million taxpayers and thousands physicians treating Medicare patients at risk," Brady said in a statement. "I'm disappointed because I still believe a full-year extension with unemployment reforms and spending cuts is the right policy for families, doctors and small businesses. I am willing to fight on, but in the end House Republicans felt like they were re-enacting the Alamo, with no reinforcements and our friends shooting at us.”

House Democrats welcomed the reversal, including Camp's counterpart on the tax-writing committee. "The voices of the American people have been clearly heard," said Ways and Means Committee ranking member Sander Levin, D-Mich. "Millions of American families can now gather for the holidays without the uncertainty of a looming tax increase on Jan. 1 or an immediate loss of their federal unemployment insurance while they look for work. The longer-term issues can now be addressed.”

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