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The Phantom Menace: A Deal On the Payroll Tax Break

Fans widely decry Episode I: The Phantom Menace as the worst installment in the Star Wars canon.

Yet, 13 years after it first hit the silver screen, Episode I is back in theatres.

This time in 3D.

Star Wars fanatics didn't like it then and they probably won't like it now.

After a year of fights over slashing spending, closing the government, raising the debt ceiling and the failed supercommittee, House Republicans were in no mood to renew an unpaid for payroll tax holiday for working Americans last December. The House GOP revolted when the Senate approved a bipartisan, stopgap bill to extend the payroll tax for two months. The House ultimately okayed a measure that runs through the end of this month. House conservatives uniformly decried the temporary bill as one of their biggest disappointments of 2011. Many freshmen and tea party loyalists were crestfallen at how the year went. They lamented their failure to make exceptionally deep budget cuts. They groused about raising the debt limit hike. They watched the abject failure of the supercommittee in its effort to make spending cuts.

Yet, like Episode I, the payroll tax debate is back on the Congressional silver screen.

This time in 3D.

House and Senate negotiators are engaged in a conference committee charged with figuring out how to extend the tax break before the current pact expires in two-and-a-half weeks.

There's definitely a disturbance in the Force. Conservatives didn't like the payroll tax cut in December and they probably won't like it now. In fact, fiscal hawks hate the idea of the unpaid tax break about as much as moviegoers abhorred Jar Jar Binks. And it doesn't take a Jedi Knight with a high midi-chlorian count to know that time to forge an agreement is running out.

"I don't want to report that any progress is being made," said Rep. Chris Van Hollen (D-MD), one of the negotiators.

The package before lawmakers doesn't just include the payroll tax break. One major issue is the extension of unemployment benefits. Another key component is the so-called "doc fix." The government uses an outdated formula to reimburse physicians who see Medicare patients. So, Congress must periodically create a fiscal patch known as the "doc fix" to make sure those doctors don't experience a nearly 30 percent drop in government payments for tending to Medicare patients. Without the fix, many of those doctors wouldn't see those on Medicare at all.

Van Hollen's remarks came as Democrats extended Republicans an offer on unemployment insurance (UI). Democrats had originally wanted the benefits to run for up to 99 weeks. In their latest proposal, Democrats dropped it to 93. President Obama only asked for 79 weeks.

Republicans uniformly dismissed the Democrats' plan.

"We need a serious offer," said payroll tax conferee Rep. Renee Ellmers (R-NC). "This is not one."

But fellow conferee Rep. Xavier Becerra (D-CA) defended the high figure.

"Talk to those people who are out of work. They need it," Becerra said, dismissing suggestions that Democrats used the 93 weeks as a negotiating ploy. "This isn't sitting in a sandbox where you trade one marble for another. These are people."

Pushing the envelope is good politics for the Democrats. In December, Democrats clearly won the day in the court of public opinion in this debate. Here was the purported party of "tax and spend" advocating lower taxes for working Americans and appearing compassionate when it came to the poor at the holidays. Meantime, Republicans appeared to be in disarray and cold-hearted. Certainly many conservatives applauded the effort to pay for the tax cut so it wouldn't gouge a hole in the Social Security Trust Fund. But that argument didn't wash with most. In January, even House Speaker John Boehner (R-OH) conceded that Republicans didn't play the political side of this as well as they could have. When Boehner finally agreed to a deal just before Christmas, many Republicans balked.

So Democrats may be willing to sit back and watch the GOP squirm. If so, Democrats hope to capture the same political magic they enjoyed in December. If the sides are unable to secure a deal, then the Democrats believe they seize the issue politically. Some are secretly hoping that Boehner will try to mediate the way he did two months ago and face fierce criticism from his right flank.

But chastened from his Yuletide experience, Boehner is staying above the fray this time. He's trying to solidify his base by demanding fiscal responsibility in a payroll tax package. Boehner and House Majority Leader Eric Cantor (R-VA) issued a statement this week that declared a "lack of progress" in the conference committee. The duo then said that the conferees "must immediately focus on some of the spending cuts that are in the House-passed bill."

Many House Republicans believe the overall payroll tax break is bad policy because of how it diminishes revenue targeted for Social Security. But GOP leaders believe the plan is at least marketable if they can demonstrate fiscal restraint and show that such a tax cut is paid for.

At Wednesday's conference committee session, Sen. Mike Crapo (R-ID) vented about the state of play at finding a compromise.

"We are obviously running into some serious philosophical differences," said Crapo. "At a minimum, this should not be a conference to increase the debt."

This is why Senate Majority Leader Harry Reid (D-NV) said more than a week ago that he was crafting an auxiliary plan in case the conference committee failed. Republicans decried Reid's announcement as premature. But Reid knows the calendar. Congress is in Washington next week and then goes away for a week for the President's Day holiday. The House then returns to town for February 27, 28 and 29. Certainly talks on the payroll tax could continue over the recess without requiring both bodies of Congress to be in session. But the consensus among top negotiators is that a path forward has to be clear by this Tuesday, Valentine's Day. That's because the House GOP has internal rules about posting the legislation well in advance. The thought is that everything must be settled by Tuesday so they can craft the final version of the bill later this week and put it on the floors of both bodies at the end of the month.

While Reid is adamant about prepping a backup plan, Boehner is reluctant to get involved.

"We appoint conferees to resolve these differences," said Boehner "They (the conferees) need to get moving. This needs to happen. I'm not going to create some artificial deadline for me or you. Been there, done that. The sooner the better."

Behind-the-scenes negotiations continued Friday. There have been staff exchanges this weekend as well. But February 14 is key. If it appears the sides can't bridge the divide, they may have to conjure up either a scaled back plan, one that doesn't run until the end of the year or a version that isn't paid for.

Nothing like a Valentine's Day breakup.

And if there's no deal, who gets the blame?

In 1999, residents of the Star Wars universe directed their anger at George Lucas for an effort they didn't think was worthy of the original. In the Congressional galaxy, the Democrats will blame the Republicans and the Republicans will target the Democrats.

Trying to settle this altercation could be about as productive as a debate over who shot first: Greedo or Han Solo.

Lucas re-released Episode I is because he amped up the film a bit. Lucas tinkered with the special effects and modified the CGI. That's been Lucas's calling card every time he's re-screened one of the films or marketed a re-tooled video.

That's kind of like the payroll tax debate coming back this time, too. Last year's fight was good. But if there's no agreement, the political explosions at the end of February are expected to exceed those in December.

So can they reach a deal? By early next week, we'll know if the sides can settle this dispute with their knowledge of the Force. Otherwise, they may have to turn to lightsabers.

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