House GOP Backs Leaders' Plan B for Unfunded Payroll Extension

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House Republicans participating in negotiations to extend the payroll-tax credit through the end of the year have signaled that they will support the GOP leadership's proposal to extend the tax cut without paying for it. Democrats, however, worry that separating it from two other expiring policies diminishes hope that a deal will be reached on all three measures.

A senior Republican leadership aide says that if President Obama and Senate Majority Leader Harry Reid do not allow Sen. Max Baucus, the top Democrat in the discussions, to negotiate in good faith on "payfors" for the payroll tax credit, then House Republicans could reluctantly bring an extension to the floor as soon as this week that is not paid for to avoid a tax increase on the middle class at the end of the month.

Sources close to the negotiations say the conference committee has been unable to find any agreeable "payfors" for the tax extension and the new option is seen as a last resort ahead of the Feb. 29 deadline. The result would extend a 2 percent cut to middle-income tax rates through the end of the year, but add about $100 billion to the nation's $15 trillion deficit.

"It's not what we want to do," a GOP aide said.

But after the House Republican leadership announced the backup plan Monday, GOP negotiators began coming around to the realization that it's unlikely the committee will reach a deal before the stop-gap measure expires.

"Our deadline is approaching fast, and I welcome a rational alternative plan, while always bearing in mind the urgent need for Congress  to be fiscally responsible in the face of annual deficits exceeding a trillion dollars," Rep. Nan Hayworth, R-N.Y., wrote in a statement.

Rep. Renee Ellmers, a freshman Republican from North Carolina, said that given the lack of progress at the negotiations, she believes "it is prudent for our leadership to have an alternative strategy moving forward."

Rep. Tom Reed, a freshman Republican from New York, also urged his GOP colleagues to support a stand-alone measure.

"Washington already takes too much from taxpayers, and time is running short to extend the tax holiday before it expires on February 29," Reed stated. "I am committed to forging an agreement in the House Senate conference committee, but as the deadline approaches it is wise to begin moving forward on a stand-alone extension to prevent a tax increase on 160 million hard-working taxpayers."

The GOP's shift is perceived as the speaker's challenging the president to see if he will accept a resolution to his top legislative priority. Congressional Democrats such as House Minority Leader Nancy Pelosi have maintained that the payroll-tax credit should not be paid for unless Republicans agree to a surtax on millionaires.

The White House calls the GOP contingency plan a "hypothetical" proposal, but Democratic sources also fear that negotiations on unemployment insurance and the "Doc Fix" for physicians providing Medicare services will fail if they are separated from the tax extension.

"The Republican plan to decouple the payroll tax jeopardizes both the ability of seniors to see their Medicare doctors and benefits for millions of Americans who lost their jobs," Pelosi, D-Calif., warned. "There is no reason all three of these priorities cannot proceed at the same time as both the House and Senate agreed."

White House spokesman Jay Carney Monday said, "Let's just see how this process plays out.  Extending unemployment insurance as well as the so-called doc fix is equally important, certainly very important, and very important for our economy.

"The president supports extending all of it, and doing it in a way that is easily achievable if folks put ideological and partisan positions aside and just get it done for the American people."

Still, at least one Republican source close to the negotiations has not given up hope that the conference committee will be able to strike a comprehensive compromise. "Having an escape hatch doesn't mean you jump through it," the aide said. "Negotiations are ongoing and productive."

There is still no word on when the full conference committee could meet next. Sources say House Republicans conferees are expected to meet privately today to discuss any lasting prospects of a bipartisan agreement.

The full House Republican Conference is expected to meet behind closed doors later this evening, at 6:00 p.m., to take the temperature of the rank and file on the leadership's backup plan.

ABC News' Ann Compton contributed to this report

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