The tax holiday, which Congress extended as 2011 closed, expires at the end of the month, and both parties say they want to avoid a lapse that would hit Americans with a tax increase of $20 a week for the typical worker.
But the problem remains the same: how to pay for the $160-billion package?
Republican leaders want to avoid a repeat of December's battles, which left Republicans suffering in the polls. Their perceived willingness to block a middle-class tax break rather than compromise with Democrats became a politically toxic position.
After the GOP held two retreats and engaged in much political soul-searching, rank-and-file Republicans have pledged to quickly resolve the payroll issue and work as a team. Yet it remains unclear whether House Speaker John A. Boehner (R-Ohio) can steer his party away from a potential impasse or whether tea party conservatives will drive the party toward one.
Senate Majority Leader Harry Reid (D-Nev.) warned that Democrats would go it alone in drafting legislation "if Republicans continue to drag their feet."
A slow-moving conference committee of Democrats and Republicans will meet again this week to try to resolve the issue.
So far, the committee appears stuck on policy priorities being pushed by the GOP — such as giving states the authority to drug-test people receiving unemployment benefits or the power to block environmental restrictions on mercury emissions from industrial boilers.
"We should not let controversial items put at risk the lifeline that 160 million American working families are counting on," Rep. Xavier Becerra (D-Los Angeles) said last week.
The package would extend the payroll tax holiday — a 2-percentage-point reduction in the tax workers pay toward Social Security — through December. Offsetting the cost of the package would ensure the retirement funds are replenished. The legislation also would continue long-term unemployment benefits and prevent a pay cut for doctors who treat Medicare patients.
But with three weeks remaining before the Feb. 29 deadline, there has been more evidence of posturing than compromise. The outlying issues have consumed much of the committee's deliberations while the main piece of business — how to pay for the legislation — remains unresolved.
"We have our work cut out for us," Rep. Dave Camp of Michigan, the Republican co-chairman of the committee, said at a recent meeting.
Competing proposals to pay for the package have little in common. Democrats have rejected the GOP call to cut domestic programs. Republicans said they would not consider President Obama's proposed surtax on people earning more than $1 million a year.
Boehner said if Democrats rejected GOP proposals to pay for the package, Senate Democrats "must get serious" and bring alternatives to the table.
But Democrats, emboldened by polling that shows broad support for raising taxes on the wealthy, see little reason to change course. Party strategists believe their argument is a winner with the public.
"We have very little time," said Rep. Henry A. Waxman (D-Beverly Hills), one of the conference committee members. "I'm going to assume that after the debacle Republicans put us through in December … that we'll work it all out."
One strategy emerging from House GOP leaders is to put pressure on Democrats to soften their positions. The GOP-led House is holding votes on bills that resemble provisions already in their proposals — as a way to put Democrats' support on the record.
Case in point: Last week, a Republican-backed House bill to freeze federal employee pay — a provision in the Republican payroll tax proposal — won support from 72 Democrats. Republicans believe the strategy will come in handy if they push to include the provision in the payroll tax compromise and Democratic leaders balk.