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Dec. 15, 2011 – 11:17 p.m.

Leaders Inch Toward Payroll Tax Agreement

By Sam Goldfarb and Ben Weyl, CQ Staff

With partisan tensions easing, congressional negotiators were pushing Thursday toward an agreement on legislation aimed at giving the economy a boost by preserving financial assistance to most Americans, including those who are working and some who are searching for jobs.

Late Thursday, Senate Majority Leader Harry Reid, D-Nev., set up a procedural vote for as early as Saturday on a House-passed payroll tax measure. And he said in the event that an agreement did not appear easily within reach, one option might be to extend an expiring Social Security payroll tax cut and other expiring programs for two months instead of a year.

Reid called this a “Plan B” approach and emphasized that he had not given up hope on a longer-term agreement.

Earlier in the day, Reid and Minority Leader Mitch McConnell, R-Ky., offered an optimistic assessment of their progress toward a year-end deal that would address a range of expiring programs, from the payroll tax cut that has benefited approximately 160 million workers to long-term unemployment benefits.

“We’ve done enough, Mr. President, back and forth, the Republican leader and me, staking out our positions, and our positions are fairly clear to the American people,” Reid said on the Senate floor at the start of the day. “What we’re going to try to do during the next few hours is try to work toward resolving some of the outstanding issues.”

In response, McConnell similarly said the two sides were engaged in “useful discussions” and were “working hard to resolve remaining differences.”

At issue was not as much the broad outlines of a final package as its details. Strong support exists in both chambers for a one-year extension of the Social Security payroll tax cut that was enacted as part of last December’s tax deal (PL 111-312). Lawmakers also want to continue long-term unemployment benefits in some form and prevent a 27 percent cut in Medicare payments to physicians that is scheduled for 2012.

All three of those elements were included in a bill (HR 3630) supported by Speaker John A. Boehner, R-Ohio, that the House passed, 234-193, on Dec. 13. Although opposed by Democrats for a variety of reasons, the House bill has served as a useful starting point for Senate negotiators, who may expand upon it by adding to its portfolio of tax-cut extensions.

Adam Jentleson, a Reid spokesman, said the cloture vote that was set up for this weekend would be on the original House bill and not necessarily on a compromise package. “We need to vote down the Boehner bill as part of this process,” he said.

Resolving Differences

Senate Finance Chairman Max Baucus, D-Mont., said Thursday he expected negotiations on the year-end package to continue through the night. He said the Democratic Caucus would not be meeting Thursday night. “Nothing’s close to being agreed to,” Baucus said.

He declined to give details of the negotiations, but he did confirm that a surtax on millionaires would not be in the final package.

Democrats have insisted all along that the legislation include a tax increase on household income above $1 million.

Leaders Inch Toward Payroll Tax Agreement

To reach an agreement, lawmakers must resolve differences over how to cover the cost of the legislation, which might exceed $200 billion over 10 years.

The consideration of a short-term extension suggested that Republicans, against Reid’s wishes, were insisting that the package not add to the deficit, and that negotiators were having trouble reaching an accord on offsets.

In addition, Republicans are under pressure from Democrats to abandon efforts to relax regulations on industrial boilers and expedite the construction of the Keystone XL oil pipeline from Canada to the Gulf of Mexico.

In recent weeks, the debate over the payroll tax cut and other expiring programs has risen in its intensity and become intertwined with other legislative matters. Earlier this week, Democrats linked an agreement to finance much of the government through fiscal 2012 with assurances that Republicans would give ground on the payroll tax cut bill.

As a result, apparent progress toward a fiscal 2012 spending deal (HR 2055) seemed to augur well for the prospects of a payroll tax cut agreement, although lawmakers and aides from both parties cautioned that none was yet at hand.

At a news conference Thursday, Boehner said that the House might leave town if it can pass a fiscal 2012 spending bill Friday. He added that lawmakers could return with 24-hour notice, if required, to act on the payroll tax measure next week.

Areas of Agreement

Despite the appearances of strong divergence, Democrats and Republicans are in sync on a number of fronts.

The House-passed bill would maintain the Social Security payroll tax in 2012 at its current reduced rate of 4.2 percent for employees. Senate Democrats have been pushing a 3.1 percent payroll tax cut for employees but are no longer advocating for a reduction in the Social Security payroll tax paid by employers.

Both parties agree on the need to prevent a deep reduction in Medicare reimbursements for physicians. The House-passed bill includes a two-year “doc fix” to prevent Medicare payments to physicians from being cut by 27 percent. It is unclear whether the final agreement will cover Medicare reimbursements for one year or for two years.

There is also consensus on the need to extend some expiring benefits for the long-term unemployed. The House Republicans’ measure would renew long-term aid through next year but would reduce the total number of weeks the jobless are eligible for assistance from 99 weeks to 59 weeks.

Many liberal Democrats, including House Ways and Means ranking member Sander M. Levin of Michigan, support keeping assistance at 99 weeks. However, in his September jobs proposal, President Obama called for allowing the assistance to drop to 79 weeks by letting some extended benefits expire.

Democrats said they were weighing a proposal to make some cuts to the number of weeks of benefits available to long-term unemployed workers that would include a special waiver for the 10 states with jobless rates above 10 percent.

Leaders Inch Toward Payroll Tax Agreement

“The thinking here is not to take states with really high unemployment rates and cut off a bunch of people because there aren’t going to be jobs,” said Sen. Dianne Feinstein, D-Calif., who represents a state where the unemployment rate was 11.7 percent in October. The national average was 9 percent that month.

Asked twice whether he would support allowing jobless benefits to expire after 79 weeks of assistance, Senate Health, Education, Labor and Pensions Committee Chairman Tom Harkin, D-Iowa, said only, “We’re trying to find a reasonable compromise on that.”

Harkin said he expected that some of the House’s provisions to overhaul the unemployment assistance program would not be included. Harkin said allowing states to use unemployment assistance money for other things was “off the table,” and he ridiculed the idea of drug-testing beneficiaries.

Unemployment provisions in the House bill that might survive include using unemployment benefits to subsidize employers to train workers or implementing job- sharing programs in which employees work reduced hours and use benefits to make up for their lost wages. Obama has endorsed similar proposals.

Searching for Offsets

How the package is financed remains a point of contention, and its resolution remains uncertain.

Democrats oppose provisions in the House-passed bill that rely on a one-year pay freeze for federal workers and spending reductions on programs from last year’s health care overhaul law (PL 111-148, PL 111-152).

Harkin said Thursday that cuts to a prevention and public health fund established by the law is also “off the table.”

Senate Budget Chairman Kent Conrad, D-N.D., said Thursday that Democrats were now considering offsetting the cost of the measure by counting savings from the drawdown of troops in Iraq and Afghanistan, though Boehner has opposed that in the past.

Other offsets in the House-passed bill are less controversial and would likely end up in an eventual compromise. The measure would increase the fees that the two giant mortgage financing companies, Fannie Mae and Freddie Mac, charge for guaranteeing loans. Senate Democrats included a similar proposal in one of their bills (S 1944) to extend the payroll tax cut.

The House bill also would find further savings by overhauling the federal flood insurance program and freeing up slices of the broadcast spectrum for wireless broadband use. Obama has previously endorsed similar offsets.

David Harrison and Alan K. Ota contributed to this story.

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