Bloomberg News

Deal on Tax Cut Caps Gridlock Year for Obama, Congress

December 28, 2011

(Updates in second paragraph to reflect possible House Republican resistance.)

Dec. 18 (Bloomberg) -- President Barack Obama said he was “very pleased” with a deal the House of Representatives is to take up tomorrow to extend a payroll tax cut and long-term unemployment benefits through February rather than allow them to expire at year’s end.

House Speaker John Boehner said he and fellow House Republicans oppose the legislation on the NBC “Meet the Press” program this morning.

The Senate measure is “just kicking the can down the road,” Boehner said. Congress should “stop, do our work and extend for one year.”

Obama’s remarks yesterday at the White House after the Senate passed the plan belied months of negotiations on a bigger package that Obama and Democrats wanted and were unable to get: A year-long extension of the payroll-tax cut along with a surtax on millionaires to pay for it and an earlier $447 billion tax and spending plan to boost hiring.

For their part, Republicans have fallen short on efforts to force the permitting of TransCanada Corp.’s Keystone XL oil pipeline from Canada to U.S. refineries, or to attach to a separate spending bill limits on family planning funding, environmental regulation and expanded health-care coverage.

The last-minute deal-making before lawmakers break for the holidays caps a year in which congressional gridlock brought the nation close to default during a debt-limit standoff and Obama had to settle for less than the so-called grand bargain of $4 trillion in deficit reduction that he once envisioned.

“It’s not clear to me that he could have gotten a much better result,” said William Galston, senior fellow for governance studies at the Brookings Institution, a policy center in Washington. “The American people see the two sides as having neutralized each other, and unable to compromise in the national interest. I think that’s the essential truth of what’s happened.

Republican Plans

Obama wasn’t the only one who came up short of goals.

“It is perfectly true that the Tea Party wing of the Republican Party came roaring into Washington with aspirations that for the most part were not realized,” Galston said.

Democrats and Republicans in the Senate both declared victory over the tax-cut extension.

Senate Republicans said they forced Obama to curb a penchant for taxing and spending. “The best way to put it is we extended the payroll tax cut holiday as far as we could get credible payfors to pay for it,” said Senate Minority Leader Mitch McConnell, a Kentucky Republican. “We’ll be back discussing the same issues in a couple of months.”

In addition to the two-month extension, the tax-cut deal includes a provision to require Obama either to say within 60 days that it’s not in the national interest to expedite permitting of a Canadian oil pipeline to U.S. refineries or issue the permit.

Keystone Pipeline

The Keystone pipeline proposal has divided the Democratic base, with organized labor in support and environmental groups opposing it. The administration had earlier postponed until after the 2012 election a decision on the permit.

“Now President Obama will have to decide whether he will stand with his radical environmental friends and their destructive global warming agenda or with a majority of the American people who want to strengthen our energy security and create hundreds of thousands of jobs,” Senator James Inhofe, an Oklahoma Republican, said in a statement.

Senator Charles Schumer of New York said the Keystone pipeline was a fig leaf for Republicans who needed to show they could force Obama’s hand. He said it would have little consequence because the State Department, which has jurisdiction because the project crosses the border, already has said it will reject the proposal if rushed to make a decision.

‘Sleeve Off a Vest’

“We feel like we’re giving them the sleeve off a vest,” Schumer said. “It doesn’t make much sense.”

Obama, on Dec. 7, said that “any effort to try to tie Keystone to the payroll tax cut I will reject.” The president didn’t mention the Keystone provision during his four-minute statement in the White House briefing room and he ignored shouted questions about the political implications.

Obama also downplayed the short-term nature of the tax cut extension.

“It is my expectation -- in fact it would be inexcusable for Congress not to further extend this middle-class tax cut for the rest of the year,” he said. “It should be a formality. And hopefully it’s done with as little drama as possible when they get back in January.”

Two administration officials, who briefed reporters on condition of anonymity, said yesterday that the language in the two-month extension doesn’t force Obama to expedite the permit in order to extend the tax cuts and thus he is not backtracking on his earlier statements.

They also offered a different analysis of the tax cut extension than Republicans. One of the officials said that once Republicans agreed to extend the tax cuts into 2012, it will make it especially difficult for them to let the tax cut expire months before the election, especially given the support for the extension among leading Republican presidential candidates.

The other official said Democrats managed to stave off demands from freshman House Republicans who were elected in 2010 with promises to repeal the president’s health-care overhaul and Wall Street regulations.

--With assistance from Steven Sloan, Richard Rubin and Loren Duggan in Washington. Editors: Joe Sobczyk, Paul Tighe

To contact the reporter on this story: Margaret Talev in Washington at mtalev@bloomberg.net.

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


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