Extending the Temporary Payroll Tax Reduction: A Brief Description and Economic Analysis
Released: 2013-01-10T00:00:00

Summary:
Social Security is financed by payroll taxes, which are paid by covered workers and their employers. In the absence of a payroll tax reduction, employees and employers would each pay 6.2% of covered earnings, up to an annual limit, whereas self-employed individuals would pay 12.4% of net self-employment income, up to an annual limit.
In an effort to stimulate the economy, Congress, in December 2010, temporarily reduced the employee and self-employed shares by two points (to 4.2% for employees and 10.4% for the self-employed), with the Social Security trust funds "made whole" by a transfer of general revenue. The temporary reduction was scheduled to expire at the end of 2011, but the reduction was extended for two months as part of the Temporary Payroll Tax Cut Continuation Act of 2011 (P.L. 112-78).
The payroll tax rate reduction was extended through the end of 2012 in the Middle Class Tax Relief and Job Creation Act of 2012 (P.L. 112-96). Extending the reduction through the end of 2012 would, by itself, increase the deficit by an estimated $93.2 billion—raising concerns about the apparent incompatibility of an extension with long-term goals of fiscal sustainability.
Earlier proposals to extend the payroll tax reduction included some form of budgetary offset to reduce or eliminate the effect on the deficit and address concerns about long-term fiscal sustainability. Among the budgetary offsets mentioned in extension proposals were a surtax on high-income individuals, freezing federal employee pay, and limiting certain federal benefits to high-income individuals. Ultimately, both the Temporary Payroll Tax Cut Continuation Act of 2012 (P.L. 112-78) and the Middle Class Tax Relief and Job Creation Act of 2012 (P.L. 112-96) extended the payroll tax rate reduction for the remainder of 2012 without offset. The payroll tax rate reduction expired at the end of 2012.
Budgetary offsets are contractionary—as they either reduce spending or increase revenues. The degree to which they are contractionary in the short term, however, depends on design and the populations affected. For example, having offsets occur after the period of economic weakness has passed could limit short-term contractionary effects while simultaneously promoting long-term fiscal sustainability. In contrast, offsets that fall on individuals facing financial constraints would be expected to have larger contractionary effects.
This report briefly discusses economic stimulus considerations related to temporary payroll tax reductions. In addition, as the Social Security trust fund is made whole through a transfer from the general fund, select options to offset this increase in the deficit will be examined to illustrate how the choice of offsets can affect the net amount of economic stimulus provided. For a discussion of Social Security policy considerations concerning a temporary payroll tax reduction, see CRS Report R41648, Social Security: Temporary Payroll Tax Reduction, by [author name scrubbed].

paragraphs: Social Security is financed by payroll taxes, which are paid by covered workers and their employers. In the absence of a payroll tax reduction, employees and employers would each pay 6.2% of covered earnings, up to an annual limit, whereas self-employed individuals would pay 12.4% of net self-employment income, up to an annual limit.
In December 2010, Congress temporarily reduced the employee and self-employed shares by two percentage points (to 4.2% for employees and 10.4% for the self-employed), with the Social Security trust funds "made whole" by a transfer of general revenue. The temporary reduction was scheduled to expire at the end of 2011, but was extended for two months as part of the Temporary Payroll Tax Cut Continuation Act of 2011 ( P.L. 112-78 ). The temporary payroll tax rate reduction was extended through the end of 2012 in the Middle Class Tax Relief and Job Creation Act of 2012 ( P.L. 112-96 ) and subsequently allowed to expire at the end of 2012.
As part of the agreement on the Temporary Payroll Tax Cut Continuation Act of 2011, a conference committee was appointed to consider a full-year extension of the payroll tax reduction. In addition to an extension of the payroll tax rate reduction, the conferees also considered a further extension of unemployment benefits and adjusting payments to doctors under Medicare. The conference committee agreed to extend the payroll tax rate reduction, emergency unemployment compensation, and physician payments under Medicare. The final legislation, however, did not fully pay for (or offset) these extensions. 
Whether to provide a full-year extension was then debated among policymakers. Concerns included those related to the potential of the temporary reduction to endanger the Social Security trust funds, signaling a departure from the self-finance structure of Social Security, while increasing the federal deficit. Supporters of an extension emphasized the potential of an extension to stimulate the economy and the general revenue "repay" as a way to counter concerns about endangering the Social Security trust funds. However, the use of offsets to reduce the budgetary cost of repaying the Social Security trust funds would reduce the stimulative effect, though the choice of offsets can influence the magnitude of the reduction.
This report briefly discusses economic stimulus considerations related to temporary payroll tax reductions and efforts to offset the budgetary cost of an extension. For a discussion of Social Security policy considerations concerning a temporary payroll tax reduction, see CRS Report R41648, Social Security: Temporary Payroll Tax Reduction , by [author name scrubbed].
subsections: section_title: The Stimulus Effects of a Temporary Reduction in Payroll Taxes6
paragraphs: Short-term fiscal stimulus measures aim to boost economic activity primarily through increases in the demand for goods and services. The goal of these measures is to break a cycle of decreasing output leading to decreasing employment, resulting in lower consumption and leading to further decreases in output. Without stimulative policies the economy would eventually stabilize and recover, but recovery would take longer and the overall disruption to the economy would be greater.
The Congressional Budget Office (CBO), in testimony before Congress, has identified three key criteria for assessing proposals to stimulate the economy. The criteria are timing, cost-effectiveness, and consistency with long-term fiscal objectives. The following sections evaluate the payroll tax rate reduction using these criteria.
subsections: section_title: Timing
paragraphs: Effective short-term stimulus should happen during the period of economic weakness. In addition, since recessions are historically short lived, effective stimulus should normally also be short lived.
An extension of the reduction in payroll taxes could be implemented quickly and be designed to expire as the economy strengthens. The resulting increase in household income would be experienced quickly, as well. A modification of the reduction in payroll taxes, through either a greater reduction or an expansion to employer contributions, could be similarly designed.
section_title: Cost-Effectiveness
paragraphs: Effective short-term stimulus maximizes the increase in output and employment per dollar of budgetary cost. The effectiveness of a policy aimed at households would then depend upon the fraction of additional income spent (as opposed to saved) on goods and services relative to the lost federal revenue. Provisions targeted at low-income individuals or the unemployed should be more cost-effective than broad tax rate reductions, as those facing financial constraints are more likely to fully spend any additional disposable income. In addition, theory suggests small recurring increases in income may be more likely to be spent than a similarly sized (in total) lump sum payment, but the empirical evidence to support this is weak.
An extension of the reduction in payroll taxes would not be targeted to those facing the greatest financial constraints, but the increase in disposable income would take the form of a small recurring increase. CBO estimated that a temporary reduction of payroll taxes would raise output cumulatively in the next two years by $0.10 to $0.90 per dollar of total budgetary cost and would increase employment by between one and nine jobs per million dollars of budgetary cost. These estimates assume that the majority of the increase in disposable income would be saved or used to pay down debt rather than spent on goods and services.
Compared with other household tax reductions, an extension of the reduction in payroll taxes may be a cost-effective stimulus—though well-targeted direct spending may be still more cost-effective. According to CBO estimates, the short-term stimulative effect of an extension of the reduction in payroll taxes would be greater than the stimulative effects from extending the Bush Tax Cuts, on par with a one-year AMT patch, and less than an increase in refundable tax credits. 
Expanding the reduction in payroll taxes to include employer contributions—as proposed in S. 1660 and S. 1917 —would be expected to provide a slightly greater degree of stimulus per unit of budgetary cost than an employee-side reduction, according to CBO. The policy could encourage hiring by temporarily reducing the cost of labor. However, other evidence suggests that subsidies provided on the employer side, whether to subsidize hiring or investment, may be relatively ineffective, because employers are unlikely to hire in the absence of increased demand. The cost-effectiveness of this policy would ultimately depend on firms' responses to the incentive.
section_title: Consistency with Long-Term Fiscal Objectives
paragraphs: Effective short-term stimulus should not hinder long-term fiscal sustainability. An extension of the reduction in payroll taxes, by itself, adds to short-term budget deficits. The two-month reduction was estimated to increase the deficit by $20.8 billion. , Extending the two percentage point payroll tax reduction through the end of 2012 is estimated to cost $93.2 billion. By themselves, these proposals would be at odds with the long-term goal of deficit reduction and may signal to some a lack of resolve to reduce deficits to investors.
To address long-term fiscal objectives, some proposals to extend or expand the temporary reduction in payroll taxes include one or more offsets to reduce or eliminate the net budgetary cost of the proposals. These offsets are, by definition, contractionary as they either cut spending or raise taxes. As enacted, the extension of the payroll tax rate reduction was not offset. 
section_title: Tax Extenders
paragraphs: Dozens of other temporary tax provisions expired at the end of 2011. Whether further extension of other expiring tax provisions should be included in a payroll tax rate was an issue of debate. Ultimately, no other expiring or expired tax provisions were extended as part of the legislation extending the payroll tax rate reduction through the end of 2012. Many of these provisions were extended through the end of 2013 by the American Taxpayer Relief Act of 2012 ( P.L. 112-240 ). 
Expired tax provisions lead to uncertainty for businesses and individual taxpayers. Furthermore, the potential for tax incentives to influence behavior, often the goal of tax policy, is diminished when expired tax incentives are reinstated retroactively. One challenge posed by the potential inclusion of tax extenders in a payroll tax rate reduction extension is the cost of extending these expired provisions. The Joint Committee on Taxation has estimated that extending these other expiring provisions for one year, through December 31, 2012, would cost $36.9 billion over the 2012 through 2021 budget window. This figure does not include the cost of extending the payroll tax rate cut. This figure also does not include the cost of extending first-year bonus depreciation, which would cost an estimated $21.1 billion over the 2012 through 2021 budget window, or the cost of adjusting the Alternative Minimum Tax (AMT) exemption amount for inflation, which is estimated to cost $119.6 billion over the 10-year budget window. 
section_title: Paying for a Temporary Payroll Tax Reduction: Options and Considerations
paragraphs: Extending the two percentage point payroll tax reduction through the end of 2012 cost an estimated $93.2 billion. In considering a further extension of the payroll tax reduction, many proposals include some form of budgetary offset. The use of offsets is not, however, universal, as the Temporary Payroll Tax Cut Continuation Act of 2012 ( H.R. 4013 ), introduced on February 13, 2012, did not contain any offsets. Ultimately, costs associated with the extension of the payroll tax rate reduction as enacted in the Middle Class Tax Relief and Job Creation Act of 2012 ( P.L. 112-96 ) were not offset. 
Offsets that reduce spending, or increase revenues, are contractionary. While offsets address the issue of long-term fiscal sustainability, depending on design, they can diminish the short-term stimulative effects of the tax cut. Having offsets occur after the period of economic weakness has passed could limit short-term contractionary effects while simultaneously promoting long-term fiscal sustainability.
In addition to the aggregate economic impacts of the offset, there are distributional effects. The percentage increase in after-tax income and the percentage decrease in average federal tax liability is greater for low- and middle-income taxpayers, as compared to the highest-income taxpayers (see Table 1 ). Offsets that reduce income or benefits to low- and middle-income earners, or offsets that otherwise increase taxes, could diminish the potential benefit of the payroll tax rate reduction for affected groups. 
subsections: section_title: Revenue Options
paragraphs: One option for offsetting the cost of extending the reduced payroll tax rate is to raise additional revenues. Some of the options discussed below have been proposed as part of payroll tax rate reduction legislation. Other options have been proposed by the Obama Administration, or have been part of comprehensive deficit reduction plans. These options represent a few of the dozens of policy options for raising additional revenues to finance an extension of reduced payroll tax rates. The revenues that could be generated using the different options discussed below are summarized in Table 2 . Since the revenue options discussed below were not included in either the House-passed or Senate-passed versions of H.R. 3630 , paying for an extension of the payroll tax rate cut extension with additional revenues would have required conferees to consider measures that were not previously included in H.R. 3630 . The final version of the Middle Class Tax Relief and Job Creation Act of 2012 ( P.L. 112-96 ), as enacted on February 22, 2012, did not include any of the revenue options discussed below. 
subsections: section_title: High-Income Surtax
paragraphs: A specific option for raising revenues to pay for an extension of the temporary two percentage point payroll tax reduction is a high-income surtax. There have been several proposals to levy a high-income surtax in the 112 th Congress. The American Jobs Act of 2011 ( S. 1660 ) would levy a 5.6% high-income surtax on those with modified adjusted gross income in excess of $1 million ($500,000 for married individuals filing separate tax returns). This surtax would raise an estimated $452.7 billion over the 2012 through 2021 budget window. 
A high-income surtax was also proposed in Senate legislation seeking to extend and expand the payroll tax rate reduction. The Middle Class Tax Cut Act of 2011 ( S. 1917 ) proposed a 3.25% surtax on modified adjusted gross income above $1 million ($500,000 for married individuals filing separate tax returns). Imposing a 3.25% surtax on those earning in excess of $1 million would generate an estimated $267.5 million over the 2012 through 2021 budget window.
Imposing a surtax on high-income individuals could partially address concerns that some high-income individuals pay lower average tax rates than some middle-income earners. In 2006, 65% of taxpayers with incomes over $1 million paid an average tax rate lower than those with less than $100,000 in taxable income. 
High-income taxpayer benefits from the payroll tax rate reduction are also limited. The 2012 wage cap is $110,100, meaning that the 12.4% OASDI payroll tax is suspended for earnings above this threshold. High-income taxpayers would receive a maximum benefit of $2,202 under a one-year, two percentage point payroll tax rate reduction. As a larger share of income is earned above the wage cap, benefits from the payroll tax rate reduction would be diminished. If, however, high-income earners were more likely to save payroll tax rate reduction benefits, rather than spend these benefits, recapturing these benefits through a high-income surtax would be less likely to dampen the stimulative impact of the payroll tax rate reduction. 
One concern that has been raised regarding a high-income surtax is the potential effect on small businesses. However, very few tax returns reporting business income (roughly 1%) report adjusted gross income in excess of $1 million. 
Offsetting a temporary payroll tax reduction through a high-income surtax would mean that the costs associated with a tax benefit received by many would be paid for by a limited group. Nearly 76% of taxpayers benefitted from the two-month extension of the temporary payroll tax rate reduction (see Table 1 ). In 2009, 0.22% of tax returns filed had an adjusted gross income of at least $1 million. 
section_title: Limit Tax Expenditures
paragraphs: Individual income tax expenditures reduce income tax revenues by roughly $1 trillion annually. Thus, scaling back or eliminating certain tax expenditures could result in additional revenues. As examples, the Congressional Budget Office has estimated that gradually eliminating the mortgage interest deduction would result in an estimated $214.6 billion over the 2012 through 2021 budget window. Limiting the deduction for state and local income taxes to 2% of adjusted gross income (AGI) would raise an estimated $629.3 billion over the 2012 through 2021 budget window. Limiting charitable contributions such that only contributions in excess of 2% of AGI would be deductible would raise $219 billion over the 2012 through 2021 budget window. 
Another option for limiting tax expenditures would be to limit the value of tax expenditures for higher-income taxpayers. The Obama Administration has proposed limiting the value of itemized deductions to 28%. This proposal would reduce the value of itemized deductions for taxpayers in the 33% and 35% bracket in 2012. Limiting the value of itemized deductions to 28% would raise an estimated $293.3 billion over the 2012 through 2021 budget window.
Limiting the value of itemized deductions to 28% would increase the progressivity of the income tax system by increasing taxes paid by those at the upper end of the income distribution. For 2011, the 33% income tax rate applies to taxable income above $212,300 for married filers ($174,400 for single filers). In 2009, the top 2% of returns filed were in the 33% or 35% tax brackets. 
Estimates suggest that limiting the value of itemized deductions to 28% would leave tax liability unchanged for those with less than $200,000 in income. Taxpayers with cash incomes between $200,000 and $500,000 would see income taxes increase by 0.1%, on average. For taxpayers with cash incomes between $500,000 and $1 million, average federal tax rates would increase by an estimated 0.4%, while average federal tax rates would increase by an estimated 0.6% for those with cash incomes in excess of $1 million. 
Similar to a high-income surtax, limiting itemized deductions to offset an extension of the payroll tax rate reduction would lead to an increased tax burden on the highest incomes. The higher tax burden, however, would result from scaling back the value of certain tax subsidies, which currently provide a greater benefit to higher-income taxpayers. 
section_title: Re-Index the Tax Code
paragraphs: Another option for raising additional revenues is to modify how tax code parameters are adjusted for inflation. Current price level measures may overstate actual levels of inflation. A modified measure of inflation that more accurately reflects changes in the price level would change how provisions in the tax code, such as the standard deduction, personal exemptions, earned income and child tax credits, and IRA contribution limits, as well as tax brackets, are indexed for inflation. A re-indexing of the tax code was included in the deficit reduction packages presented by the President's Fiscal Commission and the Debt Reduction Task Force.
The Joint Committee on Taxation (JCT) has estimated that indexing the tax code for inflation using a chained consumer price index (CPI) would generate $59.6 billion in additional revenues over the 2012 through 2021 budget window. 
Applying a chained CPI to the tax code would result in increased tax liability for taxpayers at all income levels. Moderate income taxpayers (those with cash incomes between $30,000 and $40,000) would see average tax rates increase 0.3%. Higher-income taxpayers (those with cash incomes between $100,000 and $200,000) would see average tax rates increase 0.2%. For taxpayers with incomes in excess of $1 million, tax rates would not increase, on average. 
Like the benefits of the reduced payroll tax rate, the additional tax burden imposed by re-indexing the tax code using a chained CPI is spread across the income distribution. Enacting a re-indexing of the tax code immediately could offset some of the stimulus provided by the payroll tax rate reduction. Much of the additional revenues, however, will be generated over time. Allowing the re-indexing to go into effect later in the budget window would postpone this contractionary effect, and would also reduce the revenues generated from the policy as measured within the 10-year budget window. 
section_title: Increase the Payroll Tax Wage Cap
paragraphs: Another option for raising additional revenues is to increase the social security payroll tax base. For 2012, Social Security payroll taxes apply to the first $110,100 in wage income. In recent years, roughly 83% of employment earnings fell below the Social Security wage cap. 
When payroll taxes were first collected in 1937, 92% of earnings were covered. Over time, the share of covered earnings has fluctuated, falling below 80% in the 1960s. Legislation enacted in the late 1970s increased the tax base such that 91% of earnings were covered in 1983. Since the share of covered earnings has been allowed to decline since the 1980s, one option for raising additional revenues is to increase the share of total earnings subject to the Social Security payroll tax to 90%. Like re-indexing the tax code, increasing the Social Security wage base was included in the deficit reduction plans presented by the President's Fiscal Commission and the Debt Reduction Task Force. 
CBO estimates suggest that increasing the Social Security payroll tax base to cover 90% of earnings would have a net revenue impact of $456.7 billion over the 2012 through 2021 budget window.
Increasing the Social Security payroll tax cap would increase the tax burden on upper-middle income taxpayers. For taxpayers with earnings above the current payroll tax cap of $110,100, enacting this option would offset some of the benefits associated with the payroll tax rate reduction. This measure would make the payroll tax less regressive, and over the longer term, improve the fiscal outlook of the Social Security trust fund. 
section_title: Spending Options
paragraphs: The revenue cost associated with extending the payroll tax rate reduction could also be offset with spending reductions. Two specific options that have been discussed as possible offsets for a payroll tax rate reduction extension are reductions in federal worker compensation and war contingency funds. The options of reducing spending are also discussed in the context of discretionary and mandatory spending. The specifics of potential spending reductions are beyond the scope of this report. The revenue impacts of some of the specific proposals discussed below are summarized in Table 2 .
subsections: section_title: Freezing Federal Workers' Salaries and Increasing Federal Workers' Retirement Contributions
paragraphs: The House-passed version of H.R. 3630 would extend the current freeze on statutory pay adjustments for federal employees for one year, through December 31, 2013. The House-passed version of H.R. 3630 would reduce the discretionary spending limits enacted under the BCA to achieve these savings. The CBO estimated that the provisions related to discretionary spending in the House-passed versions of H.R. 3630 would reduce spending by $26.2 billion over 2011 through 2021 budget window. 
Legislation introduced in the Senate, the Temporary Tax Holiday and Government Reduction Act ( S. 1931 ), also proposed extending the current federal employee pay freeze, through 2015. The Congressional Budget Office estimated that under S. 1931 , discretionary spending would be reduced by $221.8 billion over the 2012 through 2021 budget window. This savings comes from provisions that would freeze federal workers' salaries, reduce the size of the federal workforce, and reduce the discretionary spending caps as enacted under the Budget Control Act of 2011 (BCA; P.L. 112-25 ). 
Another option for raising revenue by reducing federal civilian employee pay would be to reduce the amount of the annual pay adjustment as established under the Federal Employees Pay Comparability Act of 1990 (FEPCA; P.L. 101-509 ). Reducing the annual across-the-board adjustment expected to occur under FEPCA by 0.5 percentage points would reduce outlays by $50.3 billion over the 2012-2016 budget window. 
The conference committee agreement on H.R. 3630 , enacted as the Middle Class Tax Relief and Job Creation Act of 2012 ( P.L. 112-96 ), included provisions to increase pension contributions of newly hired federal employees. Provisions agreed to in the conference agreement do not affect current federal workers' pension contributions, benefits, or compensation. The federal employee pension provisions enacted in P.L. 112-96 are expected to generate $15.5 billion in additional revenues over the 2012 through 2022 budget window. 
Freezing federal worker pay or reducing annual pay adjustments for federal workers would offset the benefits of the payroll tax rate reduction for a targeted group of wage earners. Regions with high concentrations of federal employees may receive less stimulative benefit from the payroll tax if a large proportion of employees have the payroll tax rate reduction offset through reduced wages. Trading future reductions in federal worker salaries for current revenue losses from a payroll tax rate reduction could make it more difficult for the federal government to recruit and retain highly qualified employees with technical and professional skills over the longer term. 
section_title: War Contingency Funds
paragraphs: Another option for offsetting the revenue cost associated with the payroll tax rate reduction extension is to use savings from overseas contingency funds. In developing the budget baseline, the CBO assumes that discretionary spending grows with inflation. Thus, spending on Overseas Contingency Operations (OCO) is projected to grow over time. 
For FY2012, an adjustment of $126.5 billion was made to the discretionary spending cap set under the BCA for OCO. Testimony presented by the CBO before the Joint Select Committee in October 2011, based on budget figures from the continuing resolution, projected the cost of overseas contingency operations over the 2012 through 2021 budget window at $1.3 trillion. If the drawdown in overseas military operations continues as expected, fewer funds will be needed for overseas contingency operations, resulting in budgetary savings relative to the CBO baseline. This option was not used to offset the payroll tax rate reduction extension as enacted in the Middle Class Tax Relief and Job Creation Act of 2012 ( P.L. 112-96 ).
section_title: Discretionary Spending
paragraphs: Legislation in the 112 th Congress has constrained anticipated growth in discretionary spending. The BCA included statutory caps on discretionary spending that resulted in $917 billion in savings over the 2012 through 2021 budget window. The BCA also established the Joint Select Committee on Deficit Reduction, tasked with finding an additional $1.5 trillion in deficit reduction over the 10-year budget window. Failure of the Joint Select Committee to propose deficit reduction legislation has led to an automatic spending reduction process. Under this process, an additional $1.1 trillion will be cut from the deficit over the 2013 through 2021 budget window. Of this $1.1 trillion, $813 billion is from reduced discretionary spending ($492 billion for defense, $322 billion nondefense). 
CBO's adjusted March 2011 baseline projected discretionary spending of $11.0 trillion over the 2013 through 2021 budget window. Projected discretionary spending under the BCA caps and automatic spending reductions is $9.4 trillion over the same time period. Thus, discretionary spending projections have been reduced by nearly 15% through BCA provisions. Offsetting the payroll tax rate reduction extension using discretionary spending cuts would require further reductions. Spending reductions are typically contractionary, implying that spending cuts enacted while the economy is still weak could offset the stimulative effect of the payroll tax rate reduction. 
section_title: Mandatory Spending
paragraphs: Several payroll tax rate reduction extension bills proposed limiting certain federal benefits, including unemployment compensation, benefits under the Supplemental Nutrition Assistance Program (SNAP), and Medicare, based on income. 
Measures to eliminate unemployment compensation for certain individuals based on income were included in the Temporary Tax Holiday and Government Reduction Act ( S. 1931 ), the Middle Class Tax Cut Act of 2011 ( S. 1944 ), and the Middle Class Tax Relief and Job Creation Act of 2011 ( H.R. 3630 ), as introduced on December 9, 2011. In all cases, the legislation sought to limit or eliminate unemployment compensation for very high-income individuals. These three bills also sought to limit SNAP (formerly known as food stamps) for very high-income individuals. CBO estimates that the unemployment compensation and SNAP provisions contained in H.R. 3630 would generate $0.1 billion over the 2012 through 2021 budget window. 
Two of the three aforementioned pieces of legislation contained provisions that would require high-income individuals to pay higher Medicare premiums ( S. 1931 and H.R. 3630 ). CBO has estimated that provisions in H.R. 3630 to adjust the calculation of Medicare premiums and increase premiums for high-income beneficiaries would raise $31.0 billion over the 2012 through 2021 budget window. 
The conference committee agreement on H.R. 3630 , and the Middle Class Tax Relief and Job Creation Act of 2012 ( P.L. 112-96 ) as enacted on February 22, 2012, did include several health offsets. In total, the health care offsets that change direct spending as enacted in P.L. 112-96 are estimated to raise $18.2 billion over the 2012 through 2022 budget window. The offsets as enacted do not increase Medicare premiums for higher-income individuals. 
Generally, reducing spending (mandatory or discretionary) will tend to have a contractionary impact. Reducing mandatory spending through reductions in benefits for high-income individuals could have a contractionary impact if individuals reduce consumption to purchase services that were previously provided through the government. Alternatively, if high-income individuals instead purchase services out of savings, maintaining current consumption levels, the short-term contractionary impacts will be reduced. 
section_title: Related Issues
paragraphs: A number of other issues were considered alongside an extension of the payroll tax rate reduction. The Temporary Payroll Tax Cut Continuation Act of 2011 ( P.L. 112-78 ) also provided a temporary extension of emergency unemployment compensation and a temporary readjustment of physicians' Medicare reimbursements. These provisions were extended in the Middle Class Tax Relief and Job Creation Act of 2012 ( P.L. 112-96 ). 
Lawmakers also considered including provisions that would extend the 100% bonus depreciation allowance to promote investment. Extending the 100% bonus depreciation allowance would generate revenue losses. To avoid increasing the deficit, the cost of extending policies such as an extension of the 100% bonus depreciation allowance would require a budgetary offset. Ultimately, an extension of the 100% bonus depreciation allowance was not enacted as part of the Middle Class Tax Relief and Job Creation Act of 2012 ( P.L. 112-96 ).
In addition to the issues mentioned in this report, legislation to extend the temporary payroll tax rate reduction has included provisions related to a number of other policy issues. Several of these issues are noted below (links to relevant CRS reports provided as footnotes):
Environmental Protection Agency (EPA) regulations related to the Maximum Achievable Control Technology (MACT) standards for boiler and solid waste combustion units; flood insurance reform; spectrum reallocation and assignment and emergency communications; and Keystone XL pipeline project.