White House drops payroll tax cut after GOP allies object

The White House reluctantly dropped its bid to cut Social Security payroll taxes Thursday as Republicans unveil a $1 trillion COVID-19 rescue package, yielding to opposition to the idea among top Senate allies.

“It won’t be in the base bill,” said Treasury Secretary Steven Mnuchin, speaking on CNBC about the payroll tax cut, killing the idea for now. The cut in the tax that finances Social Security and Medicare has been a major demand of President Donald Trump.

“The president is very focused on getting money quickly to workers right now, and the payroll tax takes time,” Mnuchin said at the Capitol. Only Sunday, Trump said in a Fox News interview that “I would consider not signing it if we don’t have a payroll tax cut.”

The long-delayed legislation comes amid alarming developments on the virus crisis. It was originally to be released Thursday morning by Senate Majority Leader Mitch McConnell, but the Kentucky Republican instead hosted an unscheduled meeting with Mnuchin and White House Chief of Staff Mark Meadows.

Afterward, Mnuchin declared the administration had reached a “fundamental agreement” with Senate Republicans.

Given the hold-up, however, Mnuchin and Meadows floated the idea of passing a bill next week that would be limited to maintaining jobless benefits that would otherwise expire and speeding aid to schools. It wasn’t clear whether the measure would still be introduced Thursday, they said.

McConnell’s $1 trillion package is an opening GOP bid in talks with top Capitol Hill Democrats — who back a $3.5 trillion House bill that passed two months ago — in a negotiation that could be rockier than talks in March that produced a $2 trillion rescue package. GOP senators and Trump are at odds over priorities, and Democrats say the Republican plans are not nearly enough to stem the health crisis, reopen schools and extend aid to jobless Americans.

“Our Republican colleagues have been so divided, so disorganized, and so unprepared that they have to struggle to draft even a partisan proposal within their own conference,” said Democratic leader Chuck Schumer.

The must-have centerpiece for McConnell is a liability shield to protect businesses, schools and others from coronavirus-related lawsuits.

The package is not expected to provide any new money for cash-strapped states and cities, which are clamoring for funds, but Republicans propose giving $105 billion to help schools reopen and $15 billion for child care centers to create safe environments for youngsters during the pandemic.

The GOP measure does forge an immediate agreement with Democrats on another round of $1,200 checks to most American adults.

The $600 weekly unemployment benefit boost that is expiring Friday would be cut back, and Mnuchin said it would ultimately be redesigned to provide a typical worker 70% of his or her income. Republicans say continuing the $600 benefit as Democrats is a disincentive to work, but some Republicans are pressing for a temporary extension of the current benefit if the talks drag.

“We cannot allow there to be a cliff in unemployment insurance given we’re still at about 11% unemployment,” said Sen. Rob Portman, R-Ohio.

The bill is likely to be silent on the potential housing crisis as a federal eviction moratorium on millions of rental units expires in days.

One key holdup in the talks was Trump’s push for a payroll tax cut, according to a Republican granted anonymity to discuss the private talks. Hardly any GOP senators support the idea. Instead, McConnell and some other Republicans prefer the direct $1,200 cash payments to Americans.

Sen. Marco Rubio, R-Fla., said there will be another boost for small business lending in the Paycheck Protection Program. “It’s going to be big,” he said.

The bills will also include tax breaks for businesses to hire and retain workers and to help shops and workplaces retool with new safety protocols. A document circulating among lobbyists claims the package would increase the deduction for business meals to 100%, offering help to the restaurant industry.

The breakthrough on testing money was key after days of debate between Republicans and the White House. Republicans wanted $25 billion, but the Trump administration said the $9 billion in unspent funds from a previous aid deal was sufficient. The two sides settled on adding $16 billion to the unspent funds to reach $25 billion, senators said. There will also be fresh funds for vaccines.

Of the $105 billion for education, Republicans want $70 billion to help K-12 schools reopen, $30 billion for colleges and $5 billion for governors to allocate. The Trump administration wanted school money linked to reopenings, but in McConnell’s package, the money for K-12 would likely be split between those that have in-person learning and those that don’t.

Democrats, who already approved House Speaker Nancy Pelosi’s more sweeping $3 trillion package two months ago, said the GOP infighting with Trump was delaying needed relief to Americans during the crisis.

“We are just days away from a housing crisis that could be prevented,” said Sen. Elizabeth Warren, D-Mass.

In their package, Democrats are calling for $430 billion to reopen schools, bigger unemployment benefits and direct aid checks, and a sweeping $1 trillion for state and local governments. They also want a fresh round of mortgage and rental assistance and new federal health and safety requirements for workers.

McConnell calls his proposal a “starting point” in negotiations with Democrats. Congress in March approved the massive $2.2 trillion CARES package, the biggest of its kind in U.S. history.

The severity of the prolonged virus outbreak is upending American life. Schools are delaying fall openings, states are clamping down with new stay-home orders and the fallout is rippling through an economy teetering with high unemployment and business uncertainty. A new AP-NORC poll shows very few Americans want full school sessions without restrictions in the fall.

Still, some Republicans said they are unlikely to approve any new aid.

“I just don’t see the need for it,” Sen. Ron Johnson, R-Wis., told reporters on Wednesday.