Senate leaders strike short-term deal to extend payroll tax holiday

Senate leaders announced Friday evening a deal to extend the payroll tax holiday and unemployment benefits for two months, putting Congress on course to adjourn for the year well in time for Christmas.

House Speaker John Boehner (R-Ohio) will consult with rank-and-file members of the House GOP conference before signing off on the agreement, say GOP sources.

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The deal includes House-passed language to expedite construction of the Keystone XL oil sands pipeline. But Democratic aides said this concession would have the effect of killing the project because the Obama administration has said it would not grant approval on a truncated timeline. 

The two-month stopgap measure would also freeze scheduled cuts in Medicare reimbursements to doctors until March.

The Senate has scheduled a vote on the agreement on Saturday morning.

The White House reacted to the Senate deal with a statement saying it "meets the test" of "preventing a tax increase on 160 million hardworking Americans."

"This is an important step towards enacting a key provision of the President’s American Jobs Act and a significant victory for the American people and the economy," Dan Pfeiffer, the White House communications director, said in a statement.

The entire cost of the backstop legislation is a little less than $30 billion, according to a senior Republican lawmaker briefed on the deal. It would be covered entirely by increasing the fees that Fannie Mae and Freddie Mac charge mortgage lenders to guarantee repayments of new mortgage loans, Senate sources said.

Democratic and Republican leaders had pressed to extend the payroll tax holiday for a full year, but talks stalled over concerns about how rank-and-file Democrats would react to GOP demands for bigger spending cuts.

A senior Republican aide said there was growing evidence Friday afternoon rank-and-file Democrats had grown increasingly uneasy, raising doubts about a yearlong deal.

Sen. Bernie Sanders (Vt.), an independent who caucuses with Democrats, said he and Democratic colleagues were worried about being forced to vote on a last-minute agreement.


“I worry that there are a handful of people who are involved in the negotiations and that we are going to be given a fait accompli and then be asked to vote on it a few hours later,” Sanders said before a deal on the two-month stopgap was announced.

“I’m certainly not the only one,” he added. “I hope very much that we can have a caucus as soon as possible, get an update of what’s going on and let the negotiators know — negotiators have to know how members feel.”

Sanders and other Democrats have spoken out forcefully against a Republican-favored provision that would expedite construction of the Keystone XL oil sands pipeline. 

Boehner and Senate Republican Leader Mitch McConnell (Ky.) said they would not accept even a temporary extension of the payroll tax holiday without the Keystone language.

A senior White House official, however, said the president would not accept an attempt by Congress to mandate construction of the pipeline before there was an adequate review of health and safety regulations.

The official said the State Department has already said that if the review was shortened to 60 days as it is in this bill, it won't be able to conduct the necessary review.

So the pipeline will almost certainly not be approved, the official said, proving the entire process moot.

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A Senate Republican aide said Democratic leaders rejected the spending cuts they proposed to finance a yearlong extension of the payroll tax holiday and the other provisions.

A senior Senate Democratic aide said Republicans had proposed cuts to Medicare benefits in the final rounds of talks and Senate Majority Leader Harry Reid (D-Nev.) rejected the offer.

"[M]y Republican colleagues wouldn’t agree to long-term tax relief unless Democrats agreed to cut Medicare benefits for seniors," Reid said in a statement.

The proposed Medicare cuts included indexing premiums and capping benefits for outpatient physical therapy used by stroke victims, according to the Democratic source.

"For the next two months, Democrats will work to extend the middle-class tax cut through the end of the year," Reid said. "Republicans can either join us, or explain why they want middle-class families’ taxes to go up."

Senate Republican Conference Chairman Lamar Alexander (Tenn.) said the prospects of a yearlong deal are dead “unless the Democrats want to come forward with a year of credible offsets.”

“We’re willing to go for a year if it doesn’t add to the debt. The House passed a version that didn’t add to the debt. Senate Democrats aren’t willing to do that. We’re willing to extend the tax holiday for as long as it doesn’t add to the debt,” Alexander said.

A senior Senate Republican aide said Republican leaders were “reluctant to go for a bigger deal because of their rank and file.”

“The pay-fors are not the pay-fors they want,” said the aide. “If the votes are there on the Democratic side to do a larger deal, we could get it done.” 

“We’re not going to raise taxes in the deal,” said the GOP aide.

On Thursday evening, Reid and GOP leaders were about $90 billion apart on a package to extend the payroll tax holiday, unemployment benefits and freeze scheduled cuts in Medicare reimbursements to doctors for a full year. They had agreed to take $100 billion to $120 billion in “consensus” spending cuts identified by the supercommittee but that covers only about half of the package’s cost. 

Democratic aides said the talks appeared to get a fresh boost of momentum after McConnell made it clear that he wants to get the issue off the table for the coming election year.

A Democratic aide said Boehner caused “hiccups” in the talks Friday by insisting on certain reforms to unemployment benefits, a key element of the payroll tax package.

This would conflict with Boehner’s insistence that he is not party to the discussions between McConnell and Reid.

A Senate Republican aide said all Republican leaders share the goal of reforming unemployment benefits.

“It’s been clear for months that Republicans were not going to extend the same policy, a totally broken one, without reforms,” said the aide.

Senate aides expect Boehner to honor the Senate agreement, but the formal green light will not come until he has a chance to consult the House Republican conference.

The Speaker told House colleagues Friday morning that if the Senate passed a two-month backstop, he would attach the Keystone pipeline language and send it back to the upper chamber.

Boehner’s spokesman Michael Steel disputed the claim that his boss had interjected himself in talks between Reid and McConnell.

“Boehner is not involved in the talks. He supports the House-passed bill and the unemployment benefit reforms in that legislation,” Steel said, referring to legislation the House passed earlier in the week to extend the payroll tax holiday, unemployment benefits and the doctors’ fix.

These items and an omnibus spending bill funding much of the federal government are the last of the must-pass items of 2011.

Earlier Friday, the House easily approved a $915 billion omnibus by a vote of 296 to 121. The Senate is expected to vote on it Saturday, unless there is an unexpected objection that could slow the process. 

Funding for several federal agencies expires at the stroke of 12 a.m. Saturday. Both chambers on Friday passed a 24-hour stopgap funding measure to keep the government operating until the Senate acts.

House lawmakers have left town for the weekend but will return at the beginning of next week to act on payroll tax legislation.

Amie Parnes contributed.

This post was updated at 8:50 p.m.