Senate Leaders Say They’re Closer to Resolving Payroll Tax, Spending Snags

U.S. Senate leaders in both parties say they are optimistic they can resolve the remaining differences over a payroll tax-cut extension and a broad $1 trillion spending bill funding most federal agencies, two issues stalling completion of congressional work for the year.

On the Senate floor this morning, Senate Majority Leader Harry Reid, a Nevada Democrat, said his office and Senate Appropriations Committee Chairman Daniel Inouye, a Hawaii Democrat, are “pretty clear” about a handful of remaining issues in the spending measure. He said he and Senate Minority Leader Mitch McConnell are closer to agreement on areas of dispute in the payroll tax cut measure, and the congressional session could end “at a reasonable time in the next few days.”

McConnell, a Kentucky Republican, also said today that he thinks both sides can resolve remaining issues in a few days.

“We are confident and optimistic we’ll be able to resolve bills on a bipartisan basis,” McConnell said.

The negotiations on the payroll measure are part of an effort to extend a two-percentage-point tax cut for workers before it expires Dec. 31. The payroll tax funds Social Security.

Votes on versions of the payroll tax cut bill could come as soon as this afternoon, said Senator Mark Begich, an Alaska Democrat.

“I think there will be some movement that gets us down the road,” he said.

‘Cannot Leave’

President Barack Obama said Congress “should not and cannot” leave for a holiday break until it passes the extension of the payroll tax cut and additional unemployment insurance. Failure to act “wouldn’t be good for the economy,” the president said in Washington today.

In a move that could ease year-end negotiations, Senate Democrats late yesterday dropped their demand for a surtax on income exceeding $1 million as long as Republicans abandon efforts to expedite approval of TransCanada Corp. (TRP)’s Keystone XL oil pipeline.

House Republicans included the provision about the pipeline, along with a handful of others that Democrats don’t like, when it passed a $202.4 billion payroll tax cut measure earlier this week. Republicans in both chambers rejected the idea of a surtax on millionaires this fall.

As the payroll tax cut’s expiration nears, Senate leaders face increasing pressure to offer an extension plan that can win passage in the chamber. While Democrats control 53 of the chamber’s 100 seats, Republicans have used procedural tactics, requiring 60 votes for approval, to thwart Democratic proposals.

‘Open’ to Suggestions

Senator Charles Schumer of New York, who helped organize the Democratic message in support of a surtax on millionaires, said yesterday that he wouldn’t “draw any lines in the sand.”

“We want to get a bill and we want to pass a payroll tax,” he told reporters. “We believe a millionaire’s tax is the best way to do it. We’re open to other suggestions.”

House Speaker John Boehner said today that there is “some movement” toward resolution marked by a new willingness by Democrats to compromise. At the same time, he said, it was clear that the surtax on millionaires can’t pass Congress, and he continued to support the pipeline project as a job creator that should remain in any compromise.

Boehner, an Ohio Republican, told reporters that Republicans are ready to wind down the year and want to both resolve the payroll tax issue and prevent a partial government shutdown that would occur tomorrow without an end to the fight over spending.

‘Take a Deep Breath’

“There is absolutely no interest on our part in trying to be strident about this,” he said. “We think it’s important to keep the government open and we think it’s important to extend the payroll tax cut” and expanded unemployment insurance.

“This isn’t the first time I’ve seen end-of-year work get knotted up,” Boehner said. “Everyone needs to step back and take a deep breath. There is an easy way to untangle all this” by letting lawmakers “do their jobs.”

To that end, he said, “an open process” in the Senate debate to allow amendments to the payroll package “would help us get to a resolution much more quickly.”

“It’s time to legislate,” he said.

Representative Nancy Pelosi of California, the Democratic leader in the House, said today that Congress must act soon. She also said Democrats won’t support a spending bill if Republicans force a vote on it before a deal is reached. “They won’t be getting any cooperation from us,” she said.

Both sides must find a method of offsetting the costs of a payroll tax cut measure in their negotiations. Any final package will probably include an extension of unemployment benefits and a provision averting a cut in reimbursements to physicians who provide care to Medicare patients.

Democrats have resisted some of the Republican proposals to cover the cost, including pay freezes for civilian federal workers and a requirement that high-income Medicare recipients pay a greater share of their premiums.

Senator Richard Durbin of Illinois, the chamber’s second- ranking Democrat, said the cost of the entire bill doesn’t need to be covered. He said he doesn’t think lawmakers have to pay for extending expanded unemployment benefits.

“Historically we’ve not paid for unemployment and now if we have to pay for it, we have to find the source,” Durbin said.

Begich said Democrats would probably draw on a “selection of ideas” from the deficit-reduction supercommittee to cover the cost of the bill.

“How it all ends up, I think, is hard to say,” he said.

In a separate decision that could speed end-of-year work, Reid also said the Senate could consider a $662 billion defense authorization measure later today. Final approval would send it to Obama to be signed into law.

To contact the reporters on this story: Laura Litvan in Washington at llitvan@bloomberg.net; James Rowley in Washington at jarowley@bloomberg.net

To contact the editor responsible for this story: Mark Silva at msilva34@bloomberg.net

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