WASHINGTON – Weary of one last round of brinkmanship before the holidays, Congress reached a tentative deal late Thursday on a $1 trillion spending bill that would avert a government shutdown as both parties negotiated on President Barack Obama’s payroll tax break.
Democrats dropped their demand for a millionaires’ surtax to pay for the payroll tax holiday, which is set to expire Dec. 31. The measure trims workers’ Social Security tax from 6.2 percent to 4.2 percent, providing an average $1,000 annual benefit for 160 million working Americans.
As a fallback, negotiators were considering a two-month extension in case they cannot agree to continue the tax break for a full year, according to those familiar with the talks. A short-term deal would include continuation of unemployment benefits, which also run out at the end of the year for some recipients.
Talks continued behind closed doors into the evening as Republicans and Democrats sought a consensus on how to pay for it.
Late Thursday, Senate Majority Leader Harry Reid, D-Nev., loosened his block on the government funding bill, which was seen as a sign of progress. Democrats had stalled the bill as a bargaining chip to bring Republicans to the table on the payroll tax break. Votes on the spending bill, which would fund the government for the rest of the current fiscal year through September 2012, were expected today.
But hurdles remain. Obama must decide on the price he is willing to pay to keep the tax break, which mainstream economists assert is vital to the struggling economy.
As Republicans resisted the surtax on millionaires, Democrats were forced to consider GOP options for offsetting the cost of the $200 billion package. Some spending cuts may be acceptable, but others, such as reducing unemployment benefits or charging upper-income seniors more for Medicare, face Democratic resistance.
Democrats were pushing for other alternatives – including raising revenue by eliminating a tax loophole on corporate jets, an idea that had drawn bipartisan support earlier.
Reaching an agreement that can capture enough votes in Congress will be the challenge in the limited time remaining. News that the talks now include consideration of a two-month extension for the tax cut demonstrated the difficulty of agreeing on how to pay for the package.