Year-End Spending Measure ‘Hostage’ in Payroll-Tax Dispute

By Brian Faler and James Rowley - Dec 14, 2011 7:19 AM GMT+0700

A $1 trillion measure to fund the U.S. government has become a bargaining chip in Congress’s debate over how to extend an expiring payroll-tax cut.

Democratic leaders said they are holding up the spending bill to force Republicans to compromise on a separate measure that would continue the payroll-tax cut, set to expire at year’s end.

Passing the spending bill now would let House Republicans approve their version of the payroll-tax cut and adjourn for the year, leaving Senate Democrats and the Obama administration with no choice but to accept it, said Representative Steny Hoyer of Maryland, the House’s second-ranking Democrat.

The budget measure is “98 percent done,” and the payroll tax dispute is “what’s really holding this up,” said Hoyer.

Senator Dick Durbin of Illinois, the chamber’s deputy Democratic leader, said the issues became “twinned” because his party wants “to be done here and leave -- we don’t want to just take a piece of it and have people race for home.”

Congress is pushing to finish its work for the year, including the spending measure that combines nine bills to fund federal agencies for the fiscal year that began Oct. 1. A stopgap plan expires Dec. 16, and without action by Congress a partial government shutdown will occur.

Pipeline Issue

Lawmakers disagree over how to pay for the payroll-tax cut, with Democrats seeking a tax surcharge on the wealthy and Republicans proposing to continue a pay freeze for federal workers. Republicans also want to use the measure to expedite construction of an oil pipeline from Canada to Texas.

Hoyer said inclusion of the Keystone XL pipeline provision by House Republican leaders is “a clear politically motivated effort to make this a controversial bill” to win votes of “their most conservative members, who don’t care one whit about compromise.”

The House voted 234-193 to approve the Republican payroll- tax plan, forwarding it on to the Senate where Majority Leader Harry Reid has said it will die.

“They’re wasting time catering to the Tea Party folks over there when they should be working with us on a bipartisan package that can pass both houses,” Reid, of Nevada, said today. He said lawmakers won’t adjourn for their holiday break until they reach a compromise on the payroll tax.

‘Hostage’

Senator Jon Kyl of Arizona, the chamber’s second-ranking Republican, called it “troubling” the spending bill had been taken “hostage” in the payroll-tax debate. Democrats would “rather shut down the government than allow this job-creating legislation to become law,” said Senate Minority Leader Mitch McConnell, a Kentucky Republican.

Many agencies are likely to face tight budgets under the still-unreleased spending bill. Though lawmakers couldn’t agree this year on tax increases or reductions in entitlement programs to reduce the federal deficit, they did decide in August to pare the approximately 40 percent of the budget that must be approved each year by Congress.

They set a discretionary spending limit of $1.043 trillion, or $7 billion lower than the 2011 fiscal year total, making it the second consecutive year appropriations have declined.

Defense Funding

Many programs are likely to see cuts to accommodate a $5 billion increase for the Pentagon, whose $518 billion budget makes up about half of the measure.

That boost of about 1 percent would be a fraction of the annual increases the Defense Department has received in recent years. Over the past decade, the agency’s “base” budget has grown by 75 percent, not including $1 trillion for the wars in Iraq and Afghanistan.

Reid said lawmakers have “six or seven” issues to resolve in the spending measure, including disputes over Republican provisions targeting Obama administration policies energy- efficient light bulbs and travel and money transfers to Cuba.

Lawmakers also are debating changes in the Commodity Futures Trading Commission’s budget, as well as restrictions on public funding of abortion in Washington, D.C., and needle- exchange programs in the capital, said Durbin.

Senate Budget Committee Chairman Kent Conrad said he hoped his colleagues wouldn’t have to pass another stopgap spending bill to buy more time for negotiations.

“That would be a bad mistake because the way this place operates, work expands to fill the time,” said Conrad, a North Dakota Democrat. “If you take the pressure off, there will just be more delay. We know how this place is.”

To contact the editor responsible for this story: Mark Silva at msilva34@bloomberg.net