Deal reached to extend payroll tax cut

House and Senate negotiators early Thursday finalized a deal to extend the payroll tax cut, emergency unemployment benefits and the Medicare reimbursement rate for doctors.

Rep. Dave Camp (R-Mich.) and Sen. Max Baucus (D-Mont.), the leaders of the committee charged with dealing with the payroll tax cut, told reporters after midnight that a few "minor" details remain to be worked out, but a majority of conferees have endorsed the package.

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"With all drafting, there are obviously technical issues that come up but we're confident that this can be concluded," said Camp, also the chairman of the House Ways and Means Committee.

The announcement of the pact came after the momentum toward a deal had appeared to derail late Wednesday evening, with an impasse emerging over a provision that would have included cuts to federal pensions.

But in the end, a compromise was reached that would mandate that new federal employees be forced to contribute more to their pension funds than workers already on the federal payroll.

House Speaker John Boehner (R-Ohio) and Senate Majority Leader Harry Reid (D-Nev.) helped negotiate the final agreement.

Camp and Baucus had hoped to have a deal wrapped up Wednesday night, after top lawmakers had said for the last 24 hours that payroll tax negotiators were exceedingly close to a deal.

But the top panelists couldn't wrangle the support of a majority of conferees until after midnight Thursday.

Because the bill was not posted online before Thursday, the House is technically not supposed to vote on the measure before Saturday. But Camp demurred when asked if the delay would prevent a Friday House vote.

"I don't schedule the floor," he said, "so I'm gonna let our leaders determine that."

Baucus and Camp both declined to weigh in on the details of the plan Thursday morning.

The agreement marks a major election-year victory for President Obama, who made extending the two-percentage point reduction in the payroll tax through 2012 a top priority.

But the deal did not come without its difficulties for the president, who was forced to reach out to skeptical Washington Democrats while traveling on the West Coast on Wednesday night to help get a deal done.

Republicans, meanwhile, were able to take the payroll tax issue off the table, after the House GOP was widely viewed as having botched the debate over the issue in December.

In addition to the federal pension fight, Democrats and Republicans had also haggled over how to use spectrum sales as one of the offsets for extended unemployment benefits. 

And on Wednesday evening, Senate Republican conferees also appeared to have not signed on to the conference deal – with Democratic and GOP aides offering different reasons for that reluctance.

The federal pension proposal was particularly unpopular with three prominent Maryland Democrats – Sen. Ben Cardin, House Minority Whip Steny Hoyer and Rep. Chris Van Hollen – who represent a large number of federal employees.

Cardin and Van Hollen are among the 20 lawmakers on the conference committee dealing with the payroll tax cut, and the three Maryland Democrats all made a late Wednesday push to replace the pension cuts with a reduction in federal pay next year.

"These are hardworking, average Americans who are already contributing $60 billion to deficit reduction over the next decade," Maureen Beach, a Hoyer spokeswoman, said in an email. "The time has come to stop targeting these men and women while not asking others to contribute their fair share."

According to a Democratic aide, Obama called some of the Maryland lawmakers who had been leading the charge to remove the federal pension provision. 

The aide said that Van Hollen told the president that he would not support pension changes that affected current federal employees, and the deal was eventually struck to leave those workers out of the deal.

The late Wednesday talks over a federal pay offset came as officials on Capitol Hill said that the three Senate Republicans on the conference committee were not yet on board with the deal.

That development also would have given Cardin extra leverage in the talks, given that a majority of Senate conferees are required to sign off on an agreement. Sens. Bob Casey of Pennsylvania and Jack Reed of Rhode Island joined Baucus and Cardin as Democrats on the committee.

A Senate Democratic aide had said Wednesday evening that Senate Minority Leader Mitch McConnell (R-Ky.) had instructed his three GOP conferees – Sens. Jon Kyl of Arizona, John Barrasso of Wyoming and Mike Crapo of Idaho – to not sign on to the conference deal if it did not include provisions that helped doctor-owned hospitals which are now banned from receiving Medicare payments.

But an aide to McConnell brushed aside that argument, and GOP aides have said that that the three Senate conferees had been left out of the negotiations over the final deal.

Sen. Charles Schumer (D-N.Y.) had suggested as much on Tuesday. But a Democratic aide close to the negotiations dismissed the idea that Senate GOP conferees weren’t consulted.

The deal that sources had outlined on Tuesday and Wednesday would extend the payroll tax cut through 2012, with its $100 billion cost tacked on to the deficit.

The agreement would also reform the unemployment insurance program, with Democrats saying the maximum number of weeks an unemployed worker could receive benefits would wind from the current 99 down to 73 by the end of the year.

Republicans have said that the vast majority of states would only be able to offer 63 weeks of benefits by the fall.

Those benefits, under the plan, would also be funded by roughly $15 billion in revenue from the sale of spectrum rights, and the pact would also pave the way for a new public safety radio channel for first responders, a senior Democratic aide said.

The previously outlined deal also includes a variety of reforms to the unemployment insurance program, including giving states more leeway to drug test potential applicants.

But in that plan, states were not given as much latitude on drug testing as in last year’s House payroll bill. The measure also did not include educational requirements that had drawn the ire of Democrats.

The third plank of the deal would avert a 27 percent cut in the reimbursement rate for doctors under Medicare, which would be paid for with savings wrung from, among other places, the 2010 health care overhaul, Medicaid and Medicare.

But, as Democrats have noted, those health care savings do not include means testing for benefits or cuts to beneficiaries. 

Whenever the measure hits the floor, House Republican leadership aides have suggested the measure would pass with strong bipartisan support.

Still, it remains to be seen if other Democratic leaders would get on board with the new pension proposal, after panning the earlier plan.

"I have a real problem with beating up on federal employees," Rep. James Clyburn of South Carolina said. "A lot of us [Democrats] are conflicted."

Many in the House Republican rank-and-file, meanwhile, appeared to be jumping on board with their leaders’ idea of not offsetting the tax holiday.

Top House Republicans made that concession on Monday, in a signal that they did not want to replay December’s fight over the payroll tax.

And even the GOP lawmakers who doubted they could back the payroll tax plan suggested they could understand their leaders’ rationale.

“It’s damage control,” said Rep. Dennis Ross (R-Fla.). “Whatever little political capital we may have left, we don’t probably want to spend it on this issue.”

This story was originally posted at 11:20 p.m. Wednesday and has been updated.