Reid, GOP leaders $90 billion apart on payroll tax holiday package

Senate Majority Leader Harry Reid (D-Nev.) and Republican leaders are about $90 billion apart on a deal to extend the payroll tax holiday, the centerpiece of President Obama’s jobs agenda, according to a senior Senate aide.

In case they fall short of a larger deal, Reid and Senate Republican Leader Mitch McConnell (R-Ky.) are also working on a two-month backstop to save average middle-class families from a $1,000 tax increase and keep unemployment benefits from running out. The fail-safe measure would also protect doctors from scheduled cuts in Medicare reimbursements.

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An aide to House Speaker John Boehner (R-Ohio) said his boss is not part of any agreement to advance a two-month backstop. The aide also declined to acknowledge that Boehner is even in direct talks with Reid even though the two of them met with McConnell late Wednesday in a secretive meeting at the Capitol.

"The House has acted and it's time for the Senate to act," said Michael Steel, a spokesman for Boehner.

Boehner has made it clear to Senate leaders that he does not want to be part of the payroll tax negotiations until the upper chamber has acted on House-passed legislation to extend the tax holiday, according to Senate sources familiar with the talks. Doing so would be interpreted by Tea Party conservatives within his caucus of Boehner negotiating with himself, they said.

McConnell appears to be acting as Boehner's proxy in the talks over extending payroll tax relief and unemployment benefits for a full year or passing a backstop measure to cover the first two months of next year. Senate aides believe Boehner would honor any deal McConnell made.

Reid and Republican leaders agree that $100 to $120 billion of the cost of the package — more than half — should be paid for by “consensus cuts” agreed to by the deficit-reduction supercommittee earlier this year, according to a senior aide familiar with the talks.

But the leaders are at odds over whether the remaining offset should come from closing “tax loopholes” for high-income individuals and families, by counting savings from ending the war in Iraq or by finding more spending cuts, said the senior aide, who briefed reporters Thursday evening. 

Democratic leaders would prefer to use revenues from closing special tax breaks, such as for corporate jets, or count the savings from drawing down troops in Iraq and Afghanistan.

They argue that the House Republican omnibus spending bill included about $2.5 billion in war savings. 

Republican leaders would prefer to make additional spending cuts to cover the full cost of the package.

Reid and GOP leaders are close to agreement on a two-month “backstop” that would extend the payroll tax, unemployment benefits and stop a scheduled cut to doctors’ Medicare reimbursements without adding to the deficit.

The cost of this backstop measure would be about $40 billion but it would not add to the deficit. It would be offset by spending cuts outlined earlier by the supercommittee.

A senior aide familiar with the talks said the leaders are hopeful of a larger deal to extend the payroll tax holiday and unemployment benefits for a full year.

“We’re still hoping to get the big thing,” said the aide.

“In the interim there are also talks of a two-month backstop extension,” the aide added.

The two-month backstop, however, would not cover expiring business tax provisions. The aide explained it would make no sense to extend them on such a short-term basis because it would play havoc with corporate accounting.

Extending the payroll tax holiday, which sets the payroll tax rate at 4.2 percent, unemployment benefits, and fixing doctors’ pay would cost about $186 billion over one year. Adding provisions to extend expiring business tax cuts could add $30 billion or more to the price tag.

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A yearlong extension of the current payroll tax rate would cost $120 billion; extending unemployment benefits for one year would add another $44 billion; saving doctors from scheduled cuts in Medicare payments for one year would cost about $22 billion.

Earlier in the day, lawmakers expressed optimism that a deal would be reached in time to let them leave town by Saturday night.

While it appears a deal will be clinched to avoid Christmastime negotiations in Washington, the solution might only be temporary.

The backstop extension would push the charged debate over extending the payroll tax holiday and how to pay for it into the election year, to February, when the Republican presidential candidates will be girding for a primary battle in Arizona.

Senate Democrats said they would sign the conference report for a $915 omnibus spending bill on Thursday evening. This would pave the way for quick approval in both chambers, averting the threat of a partial government shutdown for lack of funds.

Also on Thursday evening, Reid moved to force a vote on proceeding to a payroll extension bill the House passed earlier in the week. This bill could serve as the legislative vehicle for the Senate approving the omnibus spending bill and the two-month backstop. A larger deal to extend the payroll tax holiday for a full year could take the place of the backstop.

Unless all senators agree to yield back time, the vote to proceed to the measure would happen Saturday. There would need to be additional votes to end all debate on the legislation itself and then pass it.


This story was updated at 9:30 p.m.