U.S. Senate Nears Vote on Two-Month Payroll-Tax Cut Extension

The U.S. Senate will vote today on two-month extensions of a payroll tax cut, expanded unemployment benefits and a provision preventing doctors from having their Medicare reimbursements cut.

The bipartisan agreement reached after a day of negotiations yesterday is a scaled-back version of a $202.4 billion yearlong extension of the expiring laws passed by the House of Representatives on Dec. 13. The vote, which will end a congressional stalemate, is set for 9 a.m. in Washington. It will be followed by votes on spending bills to keep the government open through Sept. 30, 2012.

The cost of the tax legislation, estimated at more than $30 billion, will be offset by raising guarantee fees that Fannie Mae and Freddie Mac charge to home mortgage lenders. The bill will include language aimed at forcing President Barack Obama to decide within 60 days whether to approve TransCanada Corp.’s Keystone XL oil pipeline. Democratic Senator Charles Schumer of New York called it a “Pyrrhic victory” for Republicans because the Obama administration won’t agree to build the pipeline if forced into a decision.

“It’s an agreement I can recommend to my conference,” Senate Minority Leader Mitch McConnell, a Kentucky Republican, said of the overall deal. “I’m very optimistic that we’re going to have good Republican support for the package.”

No Tax Increase

The agreement means that workers won’t see their payroll taxes increase by 2 percentage points come January, giving Obama a partial victory. The president has been traveling around the country promoting the tax cut, arguing that without it there would be a tax increase of $1,000 for someone making $50,000 that would hurt workers and the economy.

The deal is “a significant victory for the American people and the economy,” Dan Pfeiffer, the White House communications director, said in a statement. An administration official, who spoke on condition of anonymity, said the administration hadn’t changed its earlier stance that it would reject the application for Keystone if forced to act within a 60-day window.

To get the extension, Democrats had to agree to the Keystone provision that many of them dislike on environmental grounds, jettison a surtax on income over $1 million and agree to offset the cost of extending unemployment benefits.

The deal, said Senate Majority Leader Harry Reid, is “the best that we could get.”

Environmental Opposition

The Keystone provision is a “special-interest” rider that doesn’t belong in the agreement, said Susan Casey-Lefkowitz of the Natural Resources Defense Council. It’s a “year-end bonus to big oil,” she said in a statement for environmental group. “The president went along in order to save hard-working Americans from a tax increase.”

The short-term agreement will put the payroll tax cut and related issues back before Congress early in 2012, and lawmakers will reprise the same themes they have been using for months.

Schumer, the Senate’s third-ranking Democrat, said Republicans would suffer political consequences for continuing to oppose a payroll-tax cut extension, adding that Democrats would continue to push the surtax. He said Democrats would benefit in February because the issue wouldn’t be linked with a spending bill to keep the government open, which the Senate will also consider this weekend.

“We’re in really good shape because the leverage they’ve always had is about shutting down the government or not raising the debt ceiling,” Schumer said. “But now the fight is on the payroll tax, which is something where we have strength.”

Earlier yesterday, lawmakers had been discussing a yearlong extension of the expiring provisions. To cover the cost of those items, the House bill included provisions that many Democrats disliked, including a pay freeze on federal civilian workers, higher Medicare premiums for high-income senior citizens and changes to federal employees’ retirement contributions.

Expiring Tax Breaks

Reid, a Nevada Democrat, had said Dec. 13 that he wanted to include $35 billion worth of extensions of expiring tax breaks. Those miscellaneous breaks include a research and development tax credit and a benefit for financial services companies’ overseas operations. They aren’t part of the agreement.

A larger, longer-term deal in the Senate proved difficult, said Senator Kent Conrad, a North Dakota Democrat, because of disagreements over how to cover the cost of the measure.

“The fundamental issue is how do you get pay-fors that everyone can agree to,” Conrad said. “That is extremely difficult.”

Democrats offered $120 billion in cuts identified by Congress’s deficit-reduction supercommittee, said a Senate Democratic leadership aide familiar with the private talks. The one-year extension failed, the aide said, because Republicans and Democrats couldn’t agree on another $70 billion to finance it. The aide said Republicans rejected ending tax breaks for corporate jets and sought to cap Medicare payments for outpatient therapy of stroke victims.

McConnell said Democrats had “difficulty” offering “credible” proposals to cover the cost of the bill.

No Gimmicks

“We wanted to make sure that we didn’t have any gimmicks, that the pay-fors were legitimate and would be viewed by everyone as legitimate,” he said. “The universe of pay-fors that were legitimate that we could agree to only covered a two month extension of unemployment and the payroll tax holiday. We’ll be back discussing the same issues in a couple of months. But from our point of view, the Keystone pipeline is a very important job-creating measure in the private sector that doesn’t cost a penny. And that was important to our members.”

House members left Washington yesterday and aren’t expected back before Dec. 19. They could then quickly act on the Senate bill.

Senator Dianne Feinstein, a California Democrat, said she would support the agreement.

“I have some concerns about it just being two months,” she said. “On the other hand, we have to get it done.”

The Senate hasn’t released the text of the bill.

The House bill is HR 3630.

To contact the reporters on this story: Richard Rubin in Washington at rrubin12@bloomberg.net; Kathleen Hunter in Washington at khunter9@bloomberg.net; Steven Sloan in Washington at ssloan7@bloomberg.net

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

Press spacebar to pause and continue. Press esc to stop.

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.