Deal on payroll tax cut extension still elusive

WASHINGTON -- There is broad agreement in Congress to extend the current payroll tax cut for one year and overhaul the federal unemployment benefit system, but a partisan divide over how to pay for it and whether to fast-track an oil pipeline has threatened Congress' ability to adjourn for the year and reignited the prospect of a government shutdown.

The Republican-controlled U.S. House approved a bill on Tuesday, 234-193, to accomplish both, but Republicans included a provision — opposed by the White House and most Democrats — to accelerate action on the Keystone XL oil pipeline from Canada to Texas. Republicans say the bill will create jobs, but Democrats say the project to create a new oil transport system from Canada through a swath of U.S. states needs further study of its environmental impact.

Senate Majority Leader Harry Reid, D-Nev., went on the Senate floor and immediately dismissed the House-passed bill as "a pointless, partisan exercise," and pledged its defeat when the Senate votes on it, as early as today. "The Senate will not pass it," he said. "The sooner we get that vote, the sooner the negotiations can begin in earnest."

Senate Democrats are advocating for a Reid bill that will pay for the payroll tax cut extension and the cost of unemployment benefits by raising taxes those earning $1 million or more annually. Republicans have opposed every effort to raise taxes this year, and continue to do so. The current impasse means neither bill can pass the other chamber.

Unless Congress can reach an agreement on the payroll tax cut extension, higher taxes will hit about 160 million Americans and translate to about $1,000 in additional taxes for the average family in 2012.

The House bill also includes additional spending to allow federal unemployment benefits to continue through December 2012, but it includes GOP-backed language to gradually reduce the maximum number of weeks from 99 to 59 to receive such benefits.

"The only way you're going to get something done over there is get some Democratic votes," Reid said on Tuesday before the House vote. "The only way I can get anything done over here is get some Republican votes. That seems to scream for compromise, and I believe that's what we need to do."

To maintain leverage in the payroll tax cut negotiations, Democrats have slowed movement on a critical "omnibus" spending measure that funds the federal government through Sept. 30 of next year. If Congress does not pass the $915 billion omnibus, or approve a short-term funding measure by Friday, the government will face the third shutdown threat this year.

Senate Democrats, fearing House Republicans will approve their versions of the legislation and leave Washington for the holidays, are withholding action on the omnibus measure to negotiate a final payroll tax package that can become law.

"If you've been on Capitol Hill for the close of sessions you will have witnessed the phenomena where the House of Representatives passes a spending bill, throws it at the Senate chamber and heads for the airport. We can't let that happen this year," said Senate Majority Whip Richard Durbin, D-Ill.

The move irritated Republicans.

"It had been agreed to before people were pulled back in," said Senate Minority Leader Mitch McConnell, R-Ky. "And here we are with a government shutdown pending Friday, a deal already made, and I think it's appropriate to ask the president and the majority leader why they want to undo a deal that was already made and threaten to shut down the government here the week before Christmas."