Lawmakers in showdown over payroll tax cuts (Reuters)

WASHINGTON (Reuters) ? Republican and Democratic lawmakers were locked in an end-of-year fight on Tuesday that threatens a government shutdown, an effective tax hike for 160 million Americans and the loss of benefits for millions of unemployed.

With just days left to resolve the crisis, both parties accused each other of "playing politics" with Americans' livelihoods even as they tried to gain the upper hand with a complex series of maneuvers on Capitol Hill.

At the center of the drama are efforts to extend aid to the long-term unemployed and a payroll tax cut for Americans that some economists say will boost the country's fragile economic recovery, and a massive spending bill that will keep the government operating beyond Friday.

Republicans in the House of Representatives defied a veto threat from President Obama and passed a bill that would force him to speed up a decision on a controversial oil pipeline even as it renews a payroll tax cut that Democrats have been seeking.

The bill was widely expected to pass the Republican-led chamber and will almost certainly die in the Democratic-controlled Senate.

Senate Majority Leader Harry Reid said he wanted to hold a vote on the Republican measure within the next day or so, so that negotiations could begin in earnest on a compromise deal.

While both Republican and Democratic leaders have expressed confidence that the payroll tax cut and unemployment benefits will be extended before December 31, it remains far from clear how both parties will find common ground.

The White House said it was still hopeful of an 11th hour deal.

Despite public confidence in Congress plunging to record lows, Democrats and Republicans have shown little inclination to end the political brinkmanship that has gridlocked Congress and alarmed investors.

The two parties have been unable to bridge a deep ideological divide over taxes and spending, bringing the government to the brink of a shutdown in April and resulting in a downgrade by Standard & Poor's of the United States' coveted AAA credit rating in August.

Republicans have been split over extending the payroll tax cut, with many rank-and-file members skeptical that it has created jobs. Republican leaders, however, fear a backlash from voters in 2012 if the tax cut is allowed to expire.

The Republican bill, passed on a mostly party-line vote of 234-193, included certain "sweeteners" to attract sufficient votes, such as a provision that would speed up a decision by Obama on the Canada-to-Texas Keystone XL oil pipeline. Obama has delayed a decision on the pipeline until 2013 amid an outcry from environmentalists, a key constituency.

While Democrats have sought to paint Republicans as the party of the rich for their reluctance to embrace the payroll tax cuts, Republicans have countered that the Keystone XL project would create 20,000 jobs almost immediately.

"Our bill includes sensible, bipartisan measures to help the private sector create jobs. Now it's time for the Senate to act," Boehner said after the vote.

The White House said if the Republican bill made it to Obama's desk, he would veto it.

It criticized Republicans for putting "the burden of paying for the bill on working families," an apparent reference to a Republican proposal to freeze federal workers' pay.

"This debate should not be about scoring political points. This debate should be about cutting taxes for the middle class," the White House said in a statement.

DEMOCRATS BACKPEDAL

Lawmakers emerging from a closed-door meeting of House Republicans accused Democrats of holding "hostage" a spending bill that will ensure funding for a wide swath of government agencies through 2012.

Both parties had appeared to reached broad agreement on the roughly $1 trillion bill on Monday night. But on Tuesday, Democrats backpedalled, saying major issues were still unresolved.

Obama had called Reid at the weekend, an administration official said, and urged him not to let Congress pass the spending bill and go on holiday before bipartisan agreement was reached on the payroll tax cut and unemployment benefits.

"Republicans seem eager to get out of town," Reid said. "Some even have suggested they're willing to leave before we reach a compromise on the payroll tax cut and other things. We're not going to do that."

Obama wants to pay for the $120 billion cost of the payroll tax cut by levying a surtax on millionaires. Republicans strongly oppose that.

Without an extension, the payroll tax would revert to 6.2 percent from its current rate of 4.2 percent, resulting in an average increase of $1,000 per family for 160 million Americans.

(Writing by Ross Colvin; Additional reporting by Rachelle Younglai, Donna Smith and Richard Cowan; Editing by Philip Barbara and Chris Wilson)

Source: http://us.rd.yahoo.com/dailynews/rss/obama/*http%3A//news.yahoo.com/s/nm/20111214/ts_nm/us_usa_taxes

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