U.S. House sets Monday votes on payroll tax cut bill

WASHINGTON Sun Dec 18, 2011 10:06pm IST

The U.S. Capitol dome in Washington, August 2, 2011. REUTERS/Jonathan Ernst/Files

The U.S. Capitol dome in Washington, August 2, 2011.

Credit: Reuters/Jonathan Ernst/Files

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WASHINGTON (Reuters) - The fate of legislation in the U.S. Congress to extend a payroll tax cut for two months was uncertain on Saturday as the measure appeared to face strong opposition in the House of Representatives.

House leaders announced they have scheduled votes on the Senate-passed bill for Monday night. But as has been the case throughout 2011, Congress was now girding for yet another fight over major legislation - even as lawmakers were clamoring to quit for the year and start a long winter break.

Just hours after President Barack Obama praised the Senate for passing the temporary tax cut extension for 160 million workers during a rare Saturday session, aides to House Republican leaders were indicating trouble rounding up support for passing the measure in their chamber.

"Republicans are overwhelmingly opposed to the Senate bill," one House Republican aide said, adding that the measure was "offensive to the middle class" because of the uncertainty such a short, two-month extension would bring.

Another House Republican aide said members were disappointed in the Senate bill, which also extends long-term unemployment benefits. This aide said several options were being weighed, including amending the bill and sending it back to the Senate.

Obama had sought a one-year extension of the tax cut, arguing it will put about $1,000 in additional cash in the hands of the average worker and help the struggling U.S. economy.

For weeks, Republicans and Democrats fought over how to offset the $120 billion one-year cost, although initially Republicans were cool to extending the tax cut at all.

The two-month extension passed the Senate with a solid 89-10 vote and the blessing of Senate Republican Leader Mitch McConnell. But as has been the case throughout this year, many House Republicans were at odds with others in their party.

The Senate also passed a $915 billion spending bill on Saturday to keep government agencies running through next September. Obama signed a stop-gap funding bill into law on Saturday evening, averting a furlough of federal workers, and was expected to sign the full $915 billion agreement when it reaches his desk.

Passage of that measure gave rise to hopes that a tumultuous year in Congress, following the Republican takeover of the House in January, would draw to a quick close.

GEARING UP FOR A FIGHT

But with the fate of the payroll tax bill now in question, there are likely to be at least a few more days of intrigue on Capitol Hill.

Obama was already gearing up for a fight in early 2012 over a full-year extension of payroll tax cuts and jobless benefits.

"It would be inexcusable for Congress not to further extend this middle class tax cut for the rest of the year," Obama said at the White House shortly after the Senate passed the bill.

Senators then left town, intending to return for business on January 23. They will have to cancel at least some of their vacation plans, however, if the House alters their tax cut bill next week.

The payroll tax measure would keep the 4.2 percent tax rate from jumping to 6.2 percent for 160 million workers on January 1.

Economists have warned that a failure to keep the workers' tax cut in place next year would hurt a U.S. recovery already exposed to troubles in debt-stricken Europe. Some said it could lop as much as 1 percentage point off U.S. economic growth.

The $33 billion cost of the Senate's two-month extension would be covered by increasing fees government-controlled Fannie Mae (FNMA.OB) and Freddie Mac (FMCC.OB) charge lenders to guarantee mortgages. A full-year extension would have cost about $200 billion.

The fees on new mortgage customers would be permanently increased by 10 basis points under the legislation.

If the House insists on a one-year extension, it is unclear whether lawmakers will be able to agree on how to offset the higher costs. And with the 2012 presidential and congressional election campaigns heating up, it is becoming harder for Democrats and Republicans to strike compromises.

Already this year, difficulties crossing the partisan divide brought the government to the brink of shutting down three times, pushed it close to a debt default and cost the nation its prized triple-A credit rating.

The $915 billion spending bill that cleared the Senate 67-32

raises funding for the Defense Department but cuts into budgets at the Environmental Protection Agency, education and health departments and other federal activities.

KEYSTONE PIPELINE FIGHT

Republicans used the payroll tax measure to push for quick U.S. approval of TransCanada Corp's (TRP.TO) Keystone XL pipeline project, which is backed by labor unions but opposed by environmental groups.

The legislation requires Obama to approve construction of the pipeline from Canada to U.S. Gulf of Mexico facilities within 60 days or declare it is not in the national interest. Obama wanted to take a year, beyond November's elections, to review the project.

Republicans argued the pipeline would create jobs at a time the nation is suffering from an 8.6 percent unemployment rate.

"The president says he wakes up every morning thinking about jobs. This morning, the Senate took action where the president has punted," said Republican Senator John Cornyn.

An Obama administration official who briefed reporters said the State Department would "almost certainly" have to turn down the approval because there would not be enough time to complete its environmental review.

The Senate bill would pay for the payroll tax cut and jobless benefits with higher guarantee fees Fannie Mae and Freddie Mac charge. That could drive up mortgage costs for homebuyers. For example, the cost of a $220,000 mortgage would go up by about $15 per month.

The administration had proposed raising the fees as a way to slash the federal budget deficit and reduce the government's role in the housing market, where it now finances about nine in 10 new mortgages. An administration official said gradually increasing the fees would encourage more private financing.

(Additional reporting by Laura MacInnis and Caren Bohan; Editing by Eric Walsh)

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