Last December, Obama announced his gift for the Christmas season: a payroll tax holiday. Now, almost exactly one year later, the payroll tax is back in the headlines as the Senate just passed a two-month payroll tax cut Saturday, December 17. The vote didn’t go over well with House Republicans who absolutely opposed the short extension vying for a one-year deal instead. Many are calling for Congress to get back to page one and rewrite it to accommodate the longer extension. The Senate, which adjourned for the year shortly after the bill was passed, may have to come back to participate in further negotiations.

The House will be voting on the two-month extension today, but many individuals are already saying this temporary solution will be struck down immediately.

This whole situation looks like it’s turning into a timing game. With the January 1, 2012 expiration date looming, the Senate — ready for the holidays — quickly came up with a temporary solution over the weekend. Although the solution gives Americans a two-month buffer period, they need more reassurance according to House Majority Leader Eric Cantor (R-VA). He released a statement to the media saying, “In this tough economy, middle class Americans need to know that their taxes won’t be going up at any point next year.”

Everyone agreed there needed to be a resolution before both parties adjourned for the year, even Obama said he would not take his vacation to Hawaii until the bill was completed. Well Obama, it looks like you will have to postpone your trip this year.

Payroll Tax Cuts Explained

In 2010, Congress agreed on a temporary tax holiday that brought employees’ social security tax payments from 6.2% down to 4.2% of their wage earnings. The cap for this 2% lowered rate came at a maximum wage base of $106,800 meaning the most an individual would be eligible to save is $2,136.

According to the U.S. Census Bureau site, if you calculate the average income of households across the U.S., you come up with $50,390. Without the tax cuts in place, the average American would be paying $3,124.18, over $1,000 more than the $2,116.38 price tag with the tax cuts.

It’s no wonder that this is a pressing issue to many Americans as they struggle to pay down debt and keep their budget in check.

So What’s the Hold Up?

The problem with only having two-month long tax cut is that it doesn’t allow for employees and employers alike to plan for the future. This is not the first Washington has played this back-and-forth game with making an important decision. It seems like the theme of this year is disagreement – with the Jobs Act being the most recent example of a bill on which both parties can’t seem to compromise.

There is another component that may be holding things up, the Keystone XL pipeline. The Keystone XL pipeline would bring in synthetic crude oil from Canada to the U.S. This controversial plan came to a halt last month as Obama postponed a decision – until 2013 – on whether or not the pipeline was an issue of national interest.

The Republicans decided to pressure Obama into making a decision by adding the provision to their proposal to extend tax cuts. Initially, Obama refused to look at any payroll tax legislation including the Keystone Pipeline XL, but made an exception this weekend with the vote on the two-month extension. It appears both parties found a way to out-trick each other and thusly has made for a sloppy ending to the year.

For the sake of lawmakers’ families, those in Congress will be able to reach an agreement this week.

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