Senate votes to extend payroll tax cut for 2 months

The Senate passed a temporary extension of President Obama’s payroll tax cut Saturday, sending the House a package that would preserve the $1,000 average tax break for 160 million working Americans — and keeping the issue alive as the 2012 election campaign heats up.

Senators overwhelmingly approved a two-month continuation of the tax break, and then swiftly agreed to fund the government to avert a shutdown in a flurry of votes that capped a tumultuous year of partisan dysfunction.

Also included was a temporary extension of long-term unemployment benefits and a Republican-backed provision that would attempt to expedite a decision on the controversial Keystone XL oil pipeline that Obama delayed until after the election. It also authorized an annual pay adjustment for doctors who treat seniors on Medicare.

Neither side was pleased with the short-term deal. The Republican-led House is expected to be cool to the package, and House Speaker John A. Boehner (R-Ohio) had not yet publicly endorsed it.

Senators calculated, however, that agreeing to a two-month deal was better than risking the political fallout of a lapse in the tax break, which expires Dec. 31. The vote was 89 to 10, with seven Republicans, two Democrats and one independent opposed.

Obama, who postponed his Hawaiian holiday vacation as Congress negotiated, said he was pleased to see the Senate action and expected the House to quickly follow suit at the beginning of the week.

“I want to thank them for ensuring that as we head into the holidays, folks at home don’t have to worry about their taxes going up,” Obama said in the White House briefing room after the vote. “While this agreement is for two months, it is my expectation — in fact, it would be inexcusable for Congress not to further extend this middle-class tax cut for the rest of the year. It should be a formality. And hopefully it’s done with as little drama as possible when they get back in January.”

Senators also approved a $915-billion package Saturday to fund the government through September, the end of the fiscal year. The House approved the package earlier this week, but Democrats slow-walked passage until the payroll tax issue was resolved. A stopgap measure will fund the government for a few days until the legislation is signed into law by the president.

The White House believes the tax holiday, combined with the unemployment benefits, are key to stimulating the economy in 2012. Mainstream economists support that view and warn that failure to approve both could nearly cut in half the modest economic growth forecast for next year.

Though tax breaks are typically embraced by Republicans, they have panned this one, which shaves the Social Security contribution workers pay from 6.2% to 4.2%. GOP lawmakers doubt the tax cut is helping the economy and are skeptical of pledges that the reduced revenue stream to the Social Security fund will be replenished.

The showdown underscores the tax and spending debates that have preoccupied Congress all year. Agreement on a full one-year extension slipped out of reach as Republicans rejected Democrats’ insistence on paying for the break by increasing taxes on those earning more than $1 million, and Democrats resisted cuts to Medicare, unemployment benefits and other domestic priorities.

Instead, the $33-billion package would be paid for with a fee increase on new mortgages backed by the federally subsided loan insurers Fannie Mae, Freddie Mac and Ginnie Mae. The increase, which would cost lenders about $15 a month on a typical $200,000 loan, was opposed by a coalition of housing, mortgage and real estate groups who fear it will be passed on to customers.

“It’s just a very ugly end to an ugly year,” said Sen. Jeff Sessions (R-Ala.), who voted against the package.

The temporary agreement starts a 60-day clock to the next showdown. Both sides have calculated they can win the battle in 2012.

“[The] 160 million workers are going to be watching folks very closely when this issue comes up again,” said Sen. Bob Casey (D-Pa.).

Tacking on the Keystone provision was a Republican priority.

“What we said is, let’s also do something that would help create jobs,” said Sen. Mitch McConnell of Kentucky, the GOP leader, about the pipeline proposed to carry tar-sands oil from Canada to refineries on the Gulf Coast. “Here’s the single largest shovel-ready project in America — ready to go.”

Obama shelved the pipeline project until 2013 to allow more time to study environmental effects and examine alternative routes.

Though Obama initially said he would veto the deal if Keystone were attached, the White House adjusted that position. The State Department said this week it could not process the project permit in the 60 days required under the Republican-backed provision, rendering a veto essentially unnecessary.

lisa.mascaro@latimes.com

kathleen.hennessey@latimes.com