On the "Simple" Extension of the 2% Reduction in Payroll Taxes

Bruce Krasting's picture

On the "Simple" Extension of the 2% Reduction in Payroll Taxes

By Bruce Krasting


This week our leaders in D.C. extended the payroll tax deduction for another ten months. The new law also extends Unemployment Benefits, and it allows for a continuation of the old payouts to Doctors for Medicare reimbursements. The cost of the legislation is $110b for the rest of the year. There are some minor offsets to this expense in out years. (We will never see those offsets.)

This legislation should have been easy to draft because it is was just an extension of what had been agreed to, two months ago. But that’s not the case. H.R. 3630 is 386 pages long. The Bill includes some interesting things:


*The Keystone Pipe line is a “go”:

The President, acting through the Secretary of State, shall grant a permit relating to issuance of permits with respect to certain energy-related facilities and land transportation crossings on the international boundaries of the United States for the Keystone XL pipeline project.

There is still “wiggle room” on the pipeline. Obama can nix the deal, but he has to do it over the next 60 days, and he has a tough obstacle:

The President shall not be required to grant the permit if the President determines that the Keystone XL pipeline would not serve the national interest.

Obama cannot make a strong argument that the Keystone XL pipeline is not in the national interest. And he knows it. Therefore, I conclude the pipeline will happen. The president folded on this one. Environmentalists will be unhappy.


*There is a new provision for eligibility for unemployment benefits. In the future, some states will require you to pee in a cup:

(A) Testing an applicant for unemployment compensation for the unlawful use of controlled sub- stances as a condition for receiving such compensation.


(B) Denying such compensation to such applicant on the basis of the result of such testing.


(C) The term ‘controlled substance’ has the meaning given such term in section 102 of the Controlled Substances Act (21 U.S.C. 802).

In case you were wondering, marijuana is a controlled substance under U.S.C 802. Something like this might reduce those seeking UE benefits by 30-40%......


*There is regulatory relief from the EPA on environmental standards set for boilers. The bottom line is that they can continue to burn dirty fuel. More pissed off environmentalists.


*The Bill calls for a one-year extension of the 100% “Bonus” tax depreciation allowance. The Congressional Budget Office (CBO) set the price tag for this at $28 billion. This is a gift to American companies. I think it is a payoff to GE’s Jeff Immelt for all the “hard work” he has done for Obama.


*There are new restrictions on Tribal Grants (the “party pooper” rules):

A State to which a grant is made under section 403 shall maintain policies and practices as necessary to prevent assistance being used in any transaction in:

(i) any liquor store;

(ii) any casino, gambling casino, or gaming establishment; or

(iii) any retail establishment which provides adult-oriented entertainment in which performers disrobe or perform in an unclothed state for entertainment.


*96 pages (a quarter of the total document) is committed to changes in the rules and laws relating to flood insurance. Quite frankly, I’m not sure what it all means. My take is that the areas designated as being in a flood zone are going to be significantly expanded in various regions of the country. There are new limitations on insurance payments for second homes. If you own a home near an existing designated flood area, you should take a look at this. There may be a dozen (or more) ways you might be getting screwed in these 96 pages.

There is a new requirement that any new mortgage from Fannie or Freddie, or ANY refi of an existing F/F mortgage, will require private flood insurance. This makes sense, but it will substantially restrict the availability of mortgages on the coasts and on many rivers.


*Another 144 pages are dedicated to the sale of new narrow and broadband licenses by the FCC. While it may have been necessary for Congress to act on broadband sales, the inclusion of this section in the Bill was payoff to some folks in exchange for votes. The Bill permits a total of $3b to be spent in the next few years preparing for the sale. After that, the CBO expects $3b a year from sales for the next seven years. There is a lot of money for both the government and private sector players in these sales. It’s not clear who will get “fat” from the new licenses, but it’s clear that someone will.


*Section 1327, ENTERPRISE GUARANTEE FEES, discusses fees that will be set by Fannie Mae and Freddie Mac in the future. The language is vague, the info in brackets is mine:

PHASED INCREASE REQUIRED.—The Director (of the FHFA) shall require (Fannie and Freddie) to charge a guarantee fee (for any new or refinanced mortgage) after the date of enactment of this section.


AMOUNT.—The amount of the increase required shall be determined by the Director to appropriately reflect the risk of loss, but not less than an average increase of 10 basis points for each year.

What the hell does this mean? Theoretically, the fees could be set very high. The fees would be set by the head of the FHFA (currently Edward DeMarco). The costs (and the increases over time) will take Fannie and Freddie out of the mortgage market at some point. Other lenders will step in and compete with F/F as the Agencies price themselves out of the market for new mortgages. Along the way, mortgage credit will become harder to get, and cost more. The bankers' lobbyists were, no doubt, behind this.

I think that Senator Richard Shelby also had a hand in this section. This language is designed to tie Obama’s hands, should he try to force F/F to alter mortgage lending terms/pricing, in an effort to provide a backdoor stimulus to housing.

The new legislation does not apply to FHA. I read this to mean that Obama will try to use FHA as his tool to stimulate housing.

The subtleties here are important. Republicans don’t want F/F to be a dog of economic policy. The Democrats do. This is another reason why the election has a lot riding on it.


*The Bill provides a 100% tax on unemployment benefits for an individual making $750,000 or a couple making $1,500,000.

I found this interesting. What has been created is a means tax (based on income). I doubt that there was much opposition to this given the high-income threshold. But once a means tax is employed as a tool to control spending, it will quickly extend to other forms of entitlement obligations. (See comments below regarding Medicare.) A means test for millionaires that restricts them from getting UE benefits is one thing. When the same concept is applied to Social Security benefits, it will be a different kettle of fish.


*There is language restricting the availability of food stamps:




This is an asset test. It establishes that an individual who owns a home and or has a bank account in excess of $1,000,000 can’t get food stamps. I am not aware of an asset test being used before. This is of little significance as I doubt that there are too many folks who live in Mac-mansions that are also getting food stamps. But it sets an interesting precedent. We have both an income and asset means test on the books. Can a Federal tax on all assets be very far behind?


*Premiums on Medicare Part B and D will increase based on income. The higher charge kicks in when income exceeds $80,000. At $200,000 and above, the Medicare beneficiary will now pay the highest rates for that insurance.

This is a tweaking of an existing means test. Higher income seniors will pay more. This is more evidence that means testing for Social Security is in our future. If high-income seniors pay more for medical insurance, it stands to reason that the same rules will soon apply to SS.


*Federal workers will pay a greater percent of their retirement benefits. These benefits are heavily subsidized today. (Federal workers pay only 1/7th of the amount contributed currently.) However, of the total $3b of increased contributions over the next decade, only $300mm is paid before 2016. In other words, the increased contributions have no consequence today, so this is a gift to all current federal workers.

It's clear to me that H.R. 3630 was really the outcome of a bunch of horse-trading between Reds and Blues. My read is that the Republicans got what they wanted on a number of key issues. The White House got what it wanted. Obama wants to say that he put $40 a week in everyone's pocket. That looks good going into an election. It's going to hurt like hell when it's reversed six-weeks after the election.



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malek's picture

The Bill provides a 100% tax on unemployment benefits for an individual making $750,000 or a couple making $1,500,000.

LOL - I'm sure that will save the gov't a ton of money!  (as taxing 100% is as good as not paying them in the first place)

WTF_247's picture

Nice job on this one, I had no idea so much was in this bill.

The MSM is not news anymore - they view themselves as entertainment.  They would do 60 minutes of Brittney Spears getting out of a limo wearing no panties if they could get away with it.

It has nothing to do with news - its about ratings and generating as much $$ ad revenue as possible.  This is why they do fluff news and lots of entertainment/teasers etc.  If they actually dug into what they were reporting on, that might actually inform users and bum them out.  Advertisers to not like bummed out audiences.

swani's picture

The system is so corrupt, how can we expect anything different from these people?

swani's picture

The recipients of the Bail Outs should be drug tested.

Yancey Ward's picture

I disagree that Obama will allow the XL pipeline to go forward.  He will make the argument it isn't in the nation's interest, and who is going to gainsay him that can change this?  No one.  I think this is a political loser for him, but he has made it clear that the environmental lobby (or Buffet) means enough to take the hit.

sangell's picture

BK ought to be writing for the NYT or WP as he cuts to the chase. I'll gladly surrender means testing if I can have drug

testing at the other end. Like BK I believe we can remove a huge number of people from the entitlement rolls with a simple piss test.

blunderdog's picture

Drug testing's a great idea, I'm sure.  It'll be really expensive to implement, so maybe they'll have to increase taxes or something, but at least it'll stamp out drug-use among the people collecting benefits. 

It'll work great--we know because there's no drug use among our professional athletes, and they all have to submit to testing too.

Eireann go Brach's picture

Great article Bruce! These politicians remind me of Monkeys throwing their own poo at each other at the zoo!

Debt-Is-Not-Money's picture

NYT's motto is "All the news that's NOT fit to print".

nmewn's picture


If it applies to workers, it should apply to those who live off the workers via the state.

Fred Hayek's picture

Over time I've become convinced that the people in the mainstream media are concerned with nothing but getting into the right cocktail parties and such soirees. Why would NONE of them tell us what Bruce has? They are almost completely useless. The next time you hear some jackass lament that we don't all watch one of three news programs on television a la 1965, remember stories like this one. Because the inert dolts who replaced the people in those three news programs tell us *nothing*. And this certainly casts into doubt how much the people working in those three news programs ever told us.

Cursive's picture

You mean while I was busy living and working, the politicians made a bunch of new laws to re-distribute my wealth and reduce my liberty?  UFB!  (Nice work Bruce -- I don't know where else I'd read a fine analysis like this.  Thx)

Thunder_Downunder's picture

"*There is a new provision for eligibility for unemployment benefits. In the future, some states will require you to pee in a cup"


This bill may mark the coming of age of the synthetic cannabanoid industry. Welcome to the world of 'herbal' marijuana america.


A testing regime that size will never be able to keep up with the pharma industry.



nmewn's picture

Another great read Bruce, thanks again.

This was "funny"...

"There is a new requirement that any new mortgage from Fannie or Freddie, or ANY refi of an existing F/F mortgage, will require private flood insurance."

This one size fits all approach to federal legislation won't go over too well for those in the mountains, sitting on their back porch, overlooking a valley 1500' below, wondering why they're paying for flood insurance they will never need.

Mariposa de Oro's picture

"My take is that the areas designated as being in a flood zone are going to be significantly expanded in various regions of the country. " ~ I was thinking there might be an Agenda 21 aspect to this.  Declare more properties in flood zones and make those almost prohibititvely expensive, then return the land to nature after bailing out the banks.  Who could argue against not building in flood zones? 

Nobody For President's picture

Beat me to it. I'm at 1250 msl. (No mortgage though, so screw it.)

Unintended consequences -

"If you like laws and sausages, you should never watch either one being made."



Thanks Bruce.

HungrySeagull's picture

250 here. about 30 feet above.

Been through some rains that I was wondering if we would flood.

Now in Texas, if it rains north of town (Higher ground) it will roar down the cross streets wheel deep and jackknife your truck.

I quit buying flood insurance after I learned the government's program is broke anyhow.

Mr Drysdale's picture

Thank you for your dissection of the bill.

dhengineer's picture

Average household income is around $55k in the United states, or about $1057 a week.  Two percent is $21.15.  Where did this "40 dollars a week" come from?

That's what happens when you dumb down math education in public schools...

mkhs's picture

Before, -21.15;  after, +21.15.  A difference of 42.30.

pvzh's picture

$55k is median income (50% makes above and 50% make below that amount). Average income is higher than median (it very well might be around $100k) thus formally $40 a week could be "correct". The problem, of course, is that "average" worker never has "average" income.

Hedgefund manager bonus of couple billions here and hedgefund manager bonus of couple billions there come a long way to boost average of many people making only 30-50k a year.

blueridgeviews's picture

Take a closer look at all the other bills that pass congress and decipher them for the rest of us.

Amish Hacker's picture

The Library of Congress makes it easy (http://thomas.loc.gov/home/thomas.php). You can search pending legislation by Bill number or by keyword, as well as keep an eye on congressional shennanigans in general. Try it.


garcam123's picture

Americans of Conscience should all just roll a joint and overwhelm the system by lighting it in front of the police station and make the bastards arrest you and force them to process you over and over and over again until the bastards cry uncle and just send you home.  Fuck this rotten dictatorship they call the government!


piceridu's picture

Bruce, thanks again for your analysis and thoughtful gift to all of us...and please keep it coming.
Thank you again. 

11b40's picture

It's been the growing trend for about 3 decades.  Everytime Congress opens up some category to "fix" it, they make it worse.  All laws, rules, & regulations are now written exclusivly for the benefit of special interests.  The America I grew up in and loved so much is gone....poof.  Corruption is the way of the land. 

Don't get me wrong.  I'm no starry eyed dreamer.  I fully realize there has always been, and always will be a certain level of corruption.  But not so long ago, it was hidden well and if discovered, it was punished and there was shame attached to it.  It has now become blatant, 'in your face' even. These politicains, bankers, and multi-nationals have neither shame nor fear as they strip mine the Treasury and fleece us all.

Bernank Sheeple's picture

No pot for the underemployed, WTF!

Debt-Is-Not-Money's picture

I guess you'll have to study mycology!

smlbizman's picture

i will piss the day those bathroom cocksucking, dwi kennedys , murdering {allegedly} condits, and the rest of those treasonus motherfuckers do.....please fell free to extend my list if you like

HungrySeagull's picture

It is a slippery slope indeed.

Next thing we know, we would have to pass a means test to buy gasoline to commute to work.

pvzh's picture

But are not we already? If you have $4, you can by 1 gallon; if you have $8, you can by 2 gallons; etc. Or, did you mean something else entirely?

SimpleandConfused's picture

I think he might mean that if you have $4 and make less than $500,000 a year, you can buy one gallon of gas.  If you have $4 and make more than $500,000 a year, you may buy 1/4 of a gallon on gas; $16 for the gallon.  And so on.

Makes sense, right?  I mean, if one is to pay for the cost of government based on one's income, then why shouldn't one pay for everything based on one's income?

We need a Federal Department of How the Fuck Much Did You Make Last Year and How the Fuck Much You Have to Pay for Shit This Year.  Maybe a few hundred thousand to start and add a few thousand now and again to make sure we can keep track.  Fairness you know.

snblitz's picture

Keep in mind that like the AMT, bracket creep (inflation) means we will all be covered by the above limitations shortly.

WTF_247's picture

Scary crap.  Once they start a means test, it will migrate to everything.  It will not stay nearly that high.  There is no tax that has ever been initated that has gone down over time.  Once govt gets a taste of that sweet cashola heroin, it cant stop.  They spend the revenues and expected increased revenues now.  This makes it impossible to cut, because they build in all sorts of crap that depends on it.

Hence the mess with the AMT.  The government does not know what to do because they have already spent all the money it is expected to generate this year and for the next X years into the future.  Despite that at some point it will affect 50% or even 70% of the US at some point, they cant do anythig about it.  God forbid they ever just cut out a whole department or even cut spending by even 1% - it never happens.  The cuts they talk about are a reduction of increases in spending.

I wish my life was that easy.  "Hey, Im gonna borrow a bunch of money and go spend $65,000 on a new car.  Wait, no I will spend only $45,000.  Wow, I have saved $20,000!!!!  I am awesome at this.  Please re-elect me.

dolph9's picture

America is an interesting place.  Full of amazing things, but also bullshit as well.  Americans don't seem to mind and often can't tell the difference.

My feeling is that the bullshit is starting to overwhelm the system, and all of the people who aren't involved in it are starting to get tired of it.  Can't blame them.

At some point, if you want to avoid the bullshit, the most you can do is drop out, and even then it's extremely hard.

blunderdog's picture

Nice job, Bruce, although personally I suspect we're still just waiting for the whole transmission to lock up.

"The system" is MUNG.

I wish I could make clear to the old man that he's going to be fucked in short order.  He might actually start planning for it.

whatsinaname's picture

No country for old men ?



kaiserhoff's picture

Nicely done, Bruce.  I don't know how much crap you have to read to find this, but we are all in your debt.

You're right, of course.  No one with a family income of one million is likely to apply for unemployment benefits.  The point is to establish the precedent, get it in the regs, and gradually tighten the screws.  The Nanny State rolls on.

WTF_247's picture

Not true, I have seen it first hand.  As a teen and into my 20s, I saw women in the supermarket near my parents house all the time using food stamps with a vary expensive purse (Gucci or the like) and very expensive jewelry.  In the parking lot they often would pull up in a high end BMW or even at times a Rolls.  

I always wondered how they would get food stamps (this is before they removed the "embarrasment" and replaced them with a card).  This happened many times.  This was far before the china "fakes" hit the markets in full force - these womens apparel was the real deal.  

I always thought that they somehow scammed for the food stamps - trading a small bit of cash to desperate people in exchange for the stamps.  Turns out they probably just applied for them.  If you put all your money into muni's you have no income techically according to the IRS.  Go go gadget application and viola!  You got food stamps.

blunderdog's picture

Wealthy divorcees have been able to utilize the system, too.  Paid-for house, plenty of gewgaws, but alimony that amounted to an allowance.

Generally speaking, the well-to-do are the ones who are best at exploiting their relative advantages.  That's part of why they're well-to-do in the first place. 

Many people with little education (and/or little patience) often never receive the benefits they're theoretically qualified-for because they never manage to get the paperwork filled out properl, never know they'd be eligible, etc etc.

Afterthought: this is precisely why I'm so certain it's going to be SocSec and Medicare that eventually break the country.  Everyone who lives to 65 knows they're eligible and they have the time and werewithal to make sure they're going to get their money. 

This suggests an interesting fix: eliminate SocSec and Medicare overnight and filter all elders into the existing welfare programs.  Many would fail to adjust to the complexity of the documentation requirements and would fall off the rolls, saving big money.  The individuals without the physical or mental capacity to deal with a day standing on line at the welfare office could be rounded up and packed into dormitories, where they could volunteer for medical testing to earn spending money.  The benefit of the combination of dormitory and medical-services would become even more obvious when they eventually die, and their few functioning organs could be harvested.

These are folks living off the labor of others, after all.