Shutdown likely averted as tax talks go on

[December 16, 2011]  WASHINGTON (AP) -- Congress appears on track to avert a government shutdown this weekend, even as President Barack Obama's push to extend a payroll tax cut and jobless benefits for another year is encountering snags.

Those hiccups in finding spending cuts to pay for extending a 2 percentage point cut in Social Security payroll taxes and jobless benefits for millions have prompted Democratic leaders to suggest just a two-month, $40 billion extension of expiring tax breaks and jobless benefits might be needed.

But the first act in clearing away a pile of unfinished business for an unpopular Congress is for the GOP-controlled House to pass a massive, bipartisan, $1 trillion-plus spending measure funding 10 Cabinet departments and U.S. operations in Iraq and Afghanistan.

That vote is on track for Friday afternoon, but a stopgap bill could be needed to fund the government into next week.

Senate Majority Leader Harry Reid, D-Nev., told reporters Thursday night that he was still optimistic that bipartisan talks on yearlong extensions of the Social Security payroll tax cut and unemployment coverage would succeed. But as a "Plan B," he said, they were working on a two-month extension as well, which would also prevent cuts in Medicare reimbursements for doctors during that period.

"We're still working on the long-term" bill, Reid told reporters as he exited the Capitol after a day of talks over both the payroll tax and spending measures. As for the two-month version, he said, "We'll only do that if what we're working on doesn't work out."

Reid's remarks put a slight damper on a day on which for the first time, Democratic and Republican leaders expressed optimism at prospects for swift compromise on their payroll tax standoff and a spending battle that had threatened to shutter federal agencies beginning at midnight Friday.

A deal on the $1 trillion-plus spending bill was reached after Republicans agreed to drop language that would have blocked President Barack Obama's liberalized rules on people who visit and send money to relatives in Cuba. But a GOP provision will stay in the bill thwarting an Obama administration rule on energy efficiency standards that critics argued would make it hard for people to purchase inexpensive incandescent light bulbs.

A senior White House official said the administration supported the two-month plan.

Bargainers were considering the two-month extension of this year's payroll tax cut and unemployment benefits bill because so far, they haven't agreed how a yearlong extension would be paid for, said a Democratic aide who spoke on condition of anonymity to discuss the private talks.

The two-month bill would cost $40 billion, according to the aide. It would be paid for from a list of around $120 billion in savings that bargainers are considering, including sales of the broadcast spectrum and raising fees that Fannie Mae and Freddie Mac charge to back mortgages, the aide said.

The two-month extension would let lawmakers revisit the measure after returning to Washington after the holiday season. That could be risky because that work would come well into the 2012 presidential and congressional election year.

Without congressional action, the payroll taxes would rise and extra benefits for the long-term unemployed would expire on Jan. 1. Doctors' Medicare payments would be automatically reduced that day by 27 percent, a reduction that could prompt some to stop seeing Medicare patients.

"Right now, Congress needs to make sure that 160 million working Americans don't see their taxes go up on Jan. 1," said Obama, referring to the tax cut extension at the core of the jobs program he outlined in a nationally televised speech three months ago.

At Obama's insistence, Congress cut the 6.2 percent Social Security payroll tax to 4.2 percent this year in an effort to stimulate the economy with more consumer spending. The president has proposed deepening the cut to 3.1 percent next year, but Republicans have only shown a willingness to renew it at this year's level.

Obama also wants to leave in place a system that provides aid for up to 99 weeks for the long-term unemployed. The House-passed measure reduces the total by 20 weeks, a step that the administration says would cut off 3.3 million individuals and that Democrats are hoping to soften if not reverse.

Reid indicated that a number of expiring tax breaks were on the table, as well, a list that included a provision that benefits commuters who use mass transit.

The House-passed payroll tax cut measure relied on a pay freeze and increased pension contributions for federal workers, as well as higher Medicare premiums for seniors with incomes over $80,000, beginning in 2017. The bill would also raise a fee that is charged to banks whose mortgages are guaranteed by Fannie Mae and Freddie Mac and cancel more than $40 billion from the year-old health care bill, Obama's signature domestic achievement.

The year-end, $1 trillion spending measure would lock in cuts that Republicans extracted from Democrats in negotiations conducted months ago against the deadline of a previous government shutdown threat. It funds 10 Cabinet departments, including the Pentagon and dozens of smaller agencies, awarding a slight increase to the military and veterans' programs while trimming most other domestic programs.

[Associated Press; By ANDREW TAYLOR]

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