Senate Leaders Optimistic on Ending Spending Impasse

(Reuters)

With a potential shut down of the US government looming, Senate Democratic and Republican leaders Thursday dropped their combative tones and said they were optimistic they could soon resolve differences over a payroll-tax cut and a spending bill.

"There are a few issues still outstanding, but they're really small in number," Senate Majority Leader Harry Reid (D-Nev.) said on the Senate floor regarding a spending bill to keep the government funded beyond Friday. He said he has been in touch with leaders from the House of Representatives and Senate Minority Leader Mitch McConnell (R-Ky.) on a payroll tax cut package and "we hope we can come up with something that would get us out of here at a reasonable time in the next few days."

McConnell, for his part, said "we hope to be able to pass a combination of appropriation bills and we are working hard to resolve the remaining differences on the payroll-tax extension and the related issues." He added that "we're confident and optimistic we'll be able to resolve both on a bipartisan basis."

Republicans and Democrats have been at odds over how to pay for an extension of the payroll tax cut. Democrats had wanted to cover the cost with a surcharge on the income tax of millionaires. Republicans saw that as class warfare, and it appears that Democrats are yielding.

"We're searching for other ways to do this with the understanding that it has to be done," said Sen. Dick Durbin (D-Ill.), assistant majority leader, on the Senate floor.

But it was not clear on what approaches both sides could agree. Democrats have objected to a Republican effort to make Social Security whole with a combination of spending cuts and revenue raisers, including by freezing pay for civilian federal workers.

If Congress fails to act, the tax that funds Social Security will revert to 6.2 percent from 4.2 percent for individuals. To force Republicans to negotiate, Reid this week had Democrats refrain from signing off on a conference report to keep the government funded. That must pass before midnight Friday or parts of the government will begin to shut down.

House Speaker John Boehner (R-Ohio) met last night with McConnell and Reid. But as of last night, Republicans were not budging. House Republican leaders filed a funding bill in the middle of the night that would have allowed the House to show it was moving forward on the spending issue. But on Thursday, Reid said "moving forward on an individual bill" would "be a mistake." He said, "I think what we should do is the conference report and I think that's the direction we're headed today."