Senate Dems, Obama Discuss Jettisoning Millionaire Surtax

Senate Democratic leaders and President Obama met at the White House Wednesday to discuss "dropping the millionaire surtax to pay for a payroll tax extension," a Senate Democratic aide tells Fox News, saying the move "is under serious consideration."

According to Fox's Ed Henry, a senior Administration official notes the President has always been open to alternative ways to pay for the payroll tax cut, though the official stressed that keeping the surtax but scaling it back remains a viable option for Democrats. No announcement is imminent, however, according to the official. 

Scrapping the surtax on the second million an American taxpayer earns would not be a surprise, though, as Republicans have steadfastly refused any tax on the wealthy, thereby depriving the majority of the necessary votes for passage.

The Democratic source says the White House group is now looking at possibly paying for an extension of any payroll tax holiday through added fees to Fannie Mae and Freddie Mac mortgage-backed securities, a $35.7 billion provision found in House Speaker John Boehner's own payroll tax/jobless benefits bill that passed the House earlier this week.

Democrats are holding up a larger spending bill that will keep the government funded past Friday in order to force Republicans in the House to compromise on an extension of the payroll tax cut and jobless benefits. They say they have done this in order to keep the House from passing the giant spending bill, known as the "megabus," and leaving town and Democrats in the Senate holding only the Boehner payroll tax extension which contains provisions they oppose, like health care-related cuts and a provision requiring the Administration to approve the Keystone XL pipeline.

Fox News has learned, though, that House Republicans plan to go ahead and file a "megabus" spending bill Wednesday night in anticipation of a potential vote Friday. The unorthodox move would effectively dare Democrats to vote against it, and signals Republicans are trying to avoid a stopgap measure.

The senior administration official told Ed Henry that the president on Wednesday also discussed a way to finalize details on the megabus, including sparing cuts to the implementation of Wall Street reform, and talked to leaders about how to get all of the business done for this session. Republicans want to keep funding for the Commodities Futures Trading Commission (CFTC) to $205 million; Administration officials have sought $300 million, saying the GOP amount is not enough to implement the Dodd-Frank financial reform bill. 

Republicans have charged Democrats with holding the spending bill hostage and pushing the federal government to the brink of a shutdown.  

The pivot by Republicans to focus on government funding masks divisions in the GOP conference on the value of a payroll tax holiday. Many consider the tax break to be bad fiscal policy and do not want it extended; still others say the tax cut can wait until after the government is funded. Some have even suggested the extension could retroactively be extended next year.

For his part, Senate Majority Leader Harry Reid, D-Nev., has said he would support a payroll tax extension, which would cover some 160 million Americans, with no offsets.  His GOP counterpart, Mitch McConnell of Kentucky, on Tuesday shut the door on that possibility, noting that the President, himself, has refused such a plan. 

Either way, Congress has hit a serious impasse and a shutdown looms by week's end. If House Republicans want to pursue a stopgap spending bill, they would have to file that measure by midnight Wednesday to comply with House rules.

Fox's Chief White House Correspondent Ed Henry contributed to this report.