Congress Agrees on Spending Deal Likely to Avert Government Shutdown

Republicans and Democrats in Congress found a compromise way Thursday night out of a deeply partisan standoff that threatened millions of Americans with a big New Year's tax increase, the unemployed with loss of government benefits and the whole federal government with a shutdown.

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

The logjam was broken one day before the government would have been forced to close its doors because of a lack of money, the result of a tangled dispute over taxes and spending. The issues have become a kind of holy grail among politicians facing elections in less than 11 months.

At issue are the extension of a reduced tax Americans automatically pay into the Social Security pension plan, extended federal government payments to the unemployed and funding to keep the government working.

President Barack Obama and the Democrats had wanted to pay for the extended Social Security tax break, a reduction in the so-called payroll tax, by imposing a 1.9 percent surtax on incomes of the richest Americans, those taking home more than $1 million a year. They apparently have dropped that demand and will find the money to finance continued cuts through higher fees charged by the mixed public-private organization that guarantees home mortgages.

Congressional Republicans had steadfastly refused to accept any increase on taxes, a bedrock issue for the party.

A new poll shows Americans hold members of Congress from both parties in record low regard, but see Republicans as more to blame for the legislature's poor record of lawmaking this year.

That combined with a new Associated Press-GfK poll that shows Americans broadly in favor of an extension of the Social Security tax cut and a lengthened period of unemployment compensation payments may have helped engender the new mood for compromise.

A poll released Thursday by the Pew Research Center for the People & the Press found public discontent with Congress at record levels, with two-thirds of those surveyed saying current members of Congress should be voted out of office next year. By a margin of nearly two-to-one (40 percent to 23 percent ), more of those questioned by Pew blamed Republican leaders than Democratic leaders for Congress' "do-nothing" record.

The new AP-GfK poll found that most Americans, six in 10, want Congress to approve an extension of the payroll tax reduction. What's more, the dragged-out debate over the extension is just one of many issues that have kept voters furious with their leaders all year. Sixty percent said they are angry about the political situation.

With that as a background, congressional leaders began speaking about compromise.

"We can extend payroll tax relief for American workers and create new jobs and keep the government running and, frankly, we can do it in a bipartisan way," Rep. John Boehner, Republican speaker of the House of Representatives, told reporters in a turnabout from weeks of partisan sniping from both sides.

"No more show votes," Boehner said after praising earlier remarks by Reid, a Democrat, who said that lingering disagreements on a mammoth spending bill could be resolved easily: "It's just time to legislate."

Reid opened the Senate's morning session by saying he and the chamber's top Republican had held talks to resolve remaining disputes. With lawmakers itching to return home before the holidays, Reid said he and the leader of the Senate's Republican minority, Sen. Mitch McConnell, hope they can reach a deal "that would get us out of here in a reasonable time, in the next few days."

Standing just across the aisle, McConnell agreed with Reid -- a stark contrast to recent days, when the two have fired sharp partisan volleys at each other.

"We're confident, optimistic we'll be able to resolve both on a bipartisan basis," said McConnell, referring to one bill that would renew the payroll tax cut and jobless benefits, and a separate spending measure that would keep federal agencies open.

Obama applied pressure of his own, saying Congress "should not and cannot" go home until it had resolved the issues.

"There's no reason why we shouldn't be able to extend these items, the payroll tax cut, u.i. before holidays," he said, using the abbreviation for unemployment insurance. "There's no reason the government should shut down over this, and I expect all of us to do what's necessary in order to do the people's business and make sure that it's done before the end of the year."

After weeks of partisan battle, a clear sign of movement came late Wednesday, when aides said Democrats were abandoning their demand for a surtax on millionaires to help finance payroll tax cuts.

Like congressional leaders, White House press secretary Jay Carney also expressed optimism Thursday about bipartisan compromise. "We believe a deal can get done," he said.

Though Obama has said repeatedly the wealthy need to "pay their fair share," Carney said the White House was open to other ways to pay for unemployment benefits and the payroll tax cut, and he downplayed what had been a major Obama argument.

"The president's priority has not been how it's paid for or raising taxes. It's been lowering taxes for the vast majority of Americans," Carney said.

As part of a tax deal reached late last year, after Republicans swept back into control in the House, the payroll tax that funds Social Security, was cut from 6.2 percent of gross income to 4.2 percent. Employers were still left paying their full 6.2 percent share. Obama had proposed making the cut even deeper next year and including employers in the reduction. That quickly evaporated when the battles broke out in Congress.

On the separate spending dispute that threatened a government shutdown, House Republicans had said Wednesday night that they would try pushing a massive $1 trillion spending bill through the House on Friday to prevent a federal shutdown. Reid said Thursday that he believed remaining partisan disputes on that bill could be settled quickly.

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.

The original Republican-approved version of a payroll tax cut bill that passed the House this week drew solid opposition from Democrats and Obama in part because it would have forced work on the Keystone XL oil pipeline from western Canada to Texas Gulf Coast refineries, which Obama would rather delay. They also are unhappy that the bill is financed by cuts to civilian federal workers, Obama's health care overhaul bill and other programs that Democrats say would avoid meaningful contributions from the rich.