Bloomberg News

Democrats Seek One-Year Tax Cut as Republicans Push Pipeline

December 28, 2011

(Updates with details of negotiations from Democratic aides in first paragraph.)

Dec. 16 (Bloomberg) -- Senate Democrats are focused on salvaging a one-year extension of the expiring payroll tax cut as they try to find enough spending reductions and other policy changes to cover the $119.6 billion cost, said two Democratic aides familiar with the talks.

Negotiators tentatively agreed on about $100 billion in savings to pay for the measure, including higher fees charged by Fannie Mae and Freddie Mac and the sale of a portion of the wireless spectrum, said one of the aides who spoke on condition of anonymity to discuss private details. The aide said lawmakers also are considering ways to reduce the $202.4 billion cost of the House-passed package without resorting to a two-month extension that Senate Majority Leader Harry Reid has described as “Plan B.”

Democrats, boxed in by Senate Republicans with the procedural power to block their preferred options, are trying to figure out how to salvage the two-percentage-point payroll tax cut, which expires Dec. 31. Republican leaders in the House and Senate have insisted that the bill include language to expedite approval of TransCanada Corp.’s Keystone XL pipeline.

“This is essentially a treaty negotiation, and we have to look at what land to give up for peace,” said Senator Barbara Mikulski, a Maryland Democrat.

An agreement on the payroll tax cut is the last issue that Congress is expected to address before it leaves Washington for the holiday recess. White House spokesman Jay Carney said President Barack Obama’s administration is “cautiously optimistic” that Congress can reach an agreement.

Covering the Cost

Democrats have been unable to advance their plan to pay for the payroll tax cut with a surtax on income exceeding $1 million. The first aide said they are considering cutting off certain tax benefits that millionaires are allowed to claim, just as Republicans have proposed requiring people earning more than $1 million to repay their unemployment benefits. The aide would not go into detail except to note that such an offset would be counted as a revenue increase rather than a spending cut.

The second Democratic aide said lawmakers were considering limiting the cost of the bill by extending 99 weeks of unemployment insurance only to the 10 hardest-hit states. The House-passed bill would eliminate that benefit for all states and gradually reduce the maximum unemployment benefit to 59 weeks.

Republicans lawmakers’ insistence on including the expedited pipeline approval in a final bill increases the chances they will prevail on that issue.

Keystone Pipeline

Many Democrats oppose TransCanada Corp.’s Keystone XL pipeline because of environmental concerns. Obama has said he would reject tying the two issues together. He hasn’t issued a specific veto threat on the pipeline provision, which would require him to decide within 60 days whether to approve the project.

Carney, asked about Obama’s stance today, said he wouldn’t “prejudge a final product that doesn’t yet exist.”

Mitch McConnell of Kentucky, the Senate’s top Republican, cited Democrats who support the project and said he requires its inclusion.

“I will not be able to support a package that does not include the pipeline,” McConnell said on the Senate floor today in Washington.

The second aide said Senate Democrats are seeking language that would give Obama some flexibility to meet the deadline for the pipeline decision.

Senate Majority

Republicans control the House of Representatives. Democrats control the Senate with a 53-47 majority. Senate Republicans can use procedural maneuvers to require a 60-vote majority for the bill.

McConnell’s push on the pipeline language followed comments today by House Speaker John Boehner, who said that even a short- term extension of the payroll tax cut would need to be linked to the pipeline.

“We will make changes,” Boehner said. “I will guarantee you the Keystone pipeline will be in the bill when it goes back to the Senate.”

McConnell said earlier today that lawmakers were making “significant progress” toward a deal on a payroll tax cut package.

State Department spokesman Victoria Nuland said she wouldn’t comment on the legality of attempts in Congress to legislate approval of the Keystone XL pipeline.

Retired General James L. Jones, a former national security adviser to Obama, said today that swift approval of the pipeline is essential to U.S. national interests.

Petroleum Institute

Jones spoke on a conference call organized by the American Petroleum Institute, which is advocating that the proposed 1,700-mile TransCanada pipeline be approved.

“I feel strongly approving the project serves the economic and security interests of the United States,” Jones said, according to the website Fuel Fix.

Also today, lawmakers were moving toward final passage of a separate $1 trillion budget measure to fund the day-to-day operations of federal agencies through Sept. 30, 2012, heading off a threatened partial government shutdown. The House passed, 296-121, the spending bill, sending it to the Senate for action as soon as today.

The completion of that bill would leave the payroll tax legislation as the last obstacle to Congress finishing its work for the year. Boehner said House members would be allowed to go home to their districts after today’s vote and then return to address a payroll tax bill that could be passed by the Senate over the weekend.

Representative Eric Cantor of Virginia, the House majority leader, said today the House would return no sooner than Dec. 19 to consider any payroll tax bill passed by the Senate.

--With assistance from Laura Litvan, Julianna Goldman, James Rowley, Brian Faler, Nicole Gaouette and Steven Sloan in Washington. Editors: Jodi Schneider, Laurie Asseo

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

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


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