White House Signals Pipeline Provision Not a Deal-Breaker in Payroll Tax Cut Debate

Dec. 16, 2011: White House Press Secretary Jay Carney gestures during his daily news briefing at the White House.

Dec. 16, 2011: White House Press Secretary Jay Carney gestures during his daily news briefing at the White House.  (AP)

Senate leaders reached a tentative agreement Friday night on legislation to extend Social Security payroll tax cuts and jobless benefits for two months while requiring President Barack Obama to accept Republican demands for a swift decision on the fate of an oil pipeline that promises thousands of jobs.

A vote is expected to be held as early as Saturday on the measure.

Any deal would also require House passage before it could reach Obama's desk.

Racing to adjourn for the year, lawmakers moved quickly to clear separate legislation avoiding a partial government shutdown threatened for midnight -- focusing attention on the final disputed issue of the year in an era of high joblessness and public dissatisfaction with Congress.

There was no immediate response to the compromise from the White House.

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Republican senators leaving a closed-door meeting put the price tag of the two-month package at about $30 billion and said the cost would be covered through a fee on mortgages backed by Fannie Mae and Freddie Mac.

The legislation would also provide a 60-day reprieve from a scheduled 27 percent cut in the fees paid to doctors who treat Medicare patients.

Several officials said the measure would require a decision within 60 days on the pipeline, with the president required to authorize construction unless he determined that would not be in the national interest.

Democratic senators met privately to review the proposal. But even before that session ended, Sen. Max Baucus, D-Mont., issued a statement saying he had "brokered a final deal by bringing lawmakers from both parties together to support jobs."

The White House appeared Friday to back off earlier threats to reject a payroll tax cut extension over a provision relating to a controversial oil pipeline, as Republicans insisted the provision be included in any final product. 

Lawmakers were shard at work trying to come up with a compromise on the payroll tax cut. But with the usual partisan acrimony giving way to flashes of cooperation Friday, White House Press Secretary Jay Carney stressed that he wanted to give negotiators room to talk without trying to "prejudge" their proposal. 

Gone was the kind of definitive language President Obama used last week when he declared "I will reject" any attempt to tie the Keystone pipeline issue to his proposed payroll tax cut. 

"I'm not going to get ahead of the process," Carney said Friday, when asked whether Obama could accept a package that extends the payroll tax cut but also includes Keystone pipeline language. 

Republicans want Congress to preserve the provision, which would speed up the process for the Keystone XL pipeline. The Obama administration recently put the project, which would run 1,700 miles from Canada to Texas, on hold so it could be further studied. Republicans, as well as union officials, said the delay would cost jobs. 

The inclusion of the Republican Keystone provision was one of several factors holding up a deal to extend the payroll tax cut for another year. That impasse in turn temporarily held up a must-pass, catch-all spending bill -- threatening a government shutdown. 

But in a rare bipartisan vote, the House of Representatives on Friday passed the $1 trillion bill. The Senate is expected to take up the bill Saturday. 

With progress made on the spending package, Republicans insisted they will not support a tax cut extension unless it includes language to speed work on the pipeline. 

Both the Republican leader in the House, Speaker John Boehner, and the Republican minority leader in the Senate, Mitch McConnell, made this point Friday. 

Carney described the move as "pure politics" and repeated the president's assertion that "he opposes these kinds of extraneous issues being inserted into a tax cut bill." 

Still, he stressed that Obama's priority is for Congress to make sure payroll taxes don't rise on Jan. 1. Carney said the White House is "cautiously optimistic" Congress can meet that goal. 

On Capitol Hill, lawmakers continued to grapple over a payroll tax cut, though the likelihood was increasing that the Keystone provision would be included in a final product. 

Negotiators are talking about extending the current 2 percentage point cut for one more year -- as opposed to the 3-point cut Obama originally requested. 

The sticking point is how to pay for it. Democrats, after abandoning a surtax on millionaires, still are trying to press Republicans to use some revenue to pay for the cut. One senior Democratic aide told Fox News lawmakers are looking at ending "tax breaks for millionaires" to offset some of the lost revenue. 

As a backstop, Senate Majority Leader Harry Reid said congressional bargainers were preparing a two-month extension of the payroll tax cut and expiring jobless benefits in case negotiations on a yearlong package do not succeed. 

Boehner's office said even a two-month extension would have to include the Keystone language. 

The pre-Christmas wrangling caps a contentious year in a capital hindered by divided government, with Democrats controlling the White House and the Senate and Republicans run the House. Lawmakers have engaged in down-to-the-wire drama even when performing the most mundane acts of governing, such as keeping agencies functioning and extending federal borrowing authority, tasks that are only becoming more politically delicate as the calendar nears the 2012 election year. 

Fox News' Trish Turner and The Associated Press contributed to this report.