WASHINGTON (Reuters) - Lawmakers intensified efforts on Friday to extend payroll tax relief for Americans, and it appeared likely that language to speed approval of a controversial oil pipeline might be part of a deal.
With Senate leaders huddling in offices near the Senate chamber in search of a payroll tax cut deal, the House of Representatives separately approved a nearly $1 trillion funding bill to avert a government shutdown this weekend and keep federal agencies operating through to September 2012.
About one-third of House Republicans bucked Speaker John Boehner, however, voting against the bill because of concerns over its price tag.
The Democratic-controlled Senate was expected to approve the 1,209-page government funding bill on Saturday and quickly dispatch it to the White House for President Barack Obama to sign into law.
That would leave the payroll tax cut bill as the last major piece of business in a congressional session that has been dominated by acrimonious fights over taxes and spending. The partisan rancour has soured Americans on Congress.
Republicans and Democrats are now squabbling over how to pay
the $120 billion cost of the payroll tax cut. Republicans are standing firm on their demand that the Keystone XL pipeline be part of any deal, arguing it will be a major job creator.
Republican leaders want to expedite construction of the pipeline from Canada to Gulf of Mexico refineries in Texas. President Barack Obama has threatened to veto any coupling of the pipeline approval process to the payroll tax bill. But on Friday, the administration softened its tone.
White House spokesman Jay Carney, asked whether Obama would accept a bill that included a provision on the pipeline, said the most important thing was to get a bill done.
Obama has delayed a decision on the Keystone XL pipeline until 2013 and called for consideration of other routes to avoid ecologically sensitive areas. Environmental groups, a core Democratic constituency, strongly oppose the project.
But labor unions and some Democrats support it.
"Here's an opportunity for the president to say he's not going to let a few radical environmentalists stand in the way of a project that would create thousands of jobs and make America more secure at the same time," said Senate Republican leader Mitch McConnell.
A Senate Democratic aide said negotiators were discussing ways to resolve the Keystone XL Pipeline issue, as well as how to make up for lost revenues if the payroll tax cut is continued for another year.
This could include killing a tax break on corporate jets and using savings from the completion of a drawdown of U.S. troops from Iraq by the end of the year, the aide said.
If Keystone becomes part of a deal, Obama and fellow Democrats will likely face the ire of environmentalists for abandoning their previous hardline stance. Earlier this week, Demorats also abandoned demands for a new surtax on the rich to pay for their payroll tax cut.
The payroll tax cut, first enacted one year ago, is set to expire on December 31. Democrats have been pushing for a one-year extension that would put about $1,000 more in the pockets of 160 million wage earners.
The White House and many economists argue that the payroll tax cut will help stimulate the struggling economy. Republican lawmakers question that but have grudgingly agreed to extend it.
Republican Representative Mike Simpson predicted the fight would soon be resolved.
"Both sides want to extend the tax cut, both sides want to extend the unemployment insurance. ... We all know those things have to happen, so we will come to a compromise."
Friday's negotiations were also focused on extending long-term unemployment benefits for millions of Americans and preventing a pay cut for doctors treating patients under the Medicare healthcare program for the elderly.
Additional reporting by Thomas Ferraro, Rachelle Younglai and Kim Dixon