Dems may drop millionaire tax demand

WASHINGTON -- Democrats may jettison their demand for higher taxes on millionaires as part of legislation to extend Social Security tax cuts for most Americans, officials said Wednesday as President Barack Obama and Congress struggled to clear critical year-end bills without triggering a partial government shutdown.

Republicans, too, signaled an eagerness to avoid gridlock and adjourn for the holidays. With a $1 trillion funding bill blocked by Democrats, GOP lawmakers and aides floated the possibility of a backup measure to keep the government in operation for several days after the money runs out Friday night.

It all comes at the close of a year of divided government -- with a tea party-flavored majority in the House and Obama's allies in the Senate -- that has veered from near- catastrophe to last-minute compromise repeatedly since last January.

"We have fiddled all year long, all year," the Republican leader, Sen. Mitch McConnell of Kentucky, complained in an exchange on the Senate floor with Majority Leader Harry Reid. McConnell accused Democrats of "routinely setting up votes designed to divide us ... to give the president a talking point out on the campaign trail."

Reid shot back that McConnell had long ago declared Obama's defeat to be his top priority. And he warned that unless Republicans show a willingness to bend, the country faces a government shutdown "that will be just as unpopular" as the two that occurred when Newt Gingrich was House speaker more than a decade ago.

It was a reminder -- as if McConnell and current Speaker John Boehner of Ohio needed one -- of the political debacle that ensued for Republicans when Gingrich was outmaneuvered in a showdown with President Bill Clinton.

At issue now are three year-end bills that Obama and leaders in both parties in Congress say they want. One would extend expiring Social Security payroll tax cuts and benefits for the long-term unemployed, provisions at the heart of Obama's jobs program. Another is the $1 trillion spending measure that would lock in cuts that Republicans won earlier in the year. The third measure is a $662 billion defense bill setting policy for military personnel, weapons systems and the wars in Iraq and Afghanistan, plus national security programs in the Energy Department.

After a two-day silence, the White House said Obama would sign the measure despite initial concern over a provision requiring the military to take custody of any suspect deemed to be a member of al-Qaida or its affiliates and involved in plotting or committing attacks on the United States. U.S. citizens would be exempt.

Reid and other top Democratic senators met with Obama at the White House at midafternoon, and congressional aides said the topic was the end-of-year legislation.

Democrats have made the proposed millionaires' tax central to their plan for the payroll tax cut extension, and officials stressed no decision had been made on whether to drop it. They spoke on condition of anonymity to talk about legislative strategy.

Any such move would represent a concession to the Republicans in both houses who are opposed to the surtax. But it could also require Democrats to agree to politically painful savings elsewhere in the budget to replace the estimated $140 billion the tax would have raised over a decade.

In its most recent form, the surtax would have slapped a 1.9 percent tax on income in excess of $1 million, with the proceeds helping pay for the extension of tax cuts for 160 million workers. Senate Democrats have twice forced votes on the proposal in what officials have described as a political maneuver designed to force GOP lawmakers to choose between protecting the wealthy on the one hand and extending tax cuts for millions on the other.

Wednesday's maneuvering occurred the day after the House passed a payroll tax extension that contained no higher taxes. That House measure drew a veto threat from Obama that cited spending cuts the White House said would harm the middle class without requiring a sacrifice from the wealthy.

The bill would extract nearly $43 billion from the year-old health care bill; extend a pay freeze on federal employees while also increasing their pension contributions and raise Medicare premiums on seniors with incomes over $80,000 beginning in 2017. It also would raise a fee that is charged to banks whose mortgages are guaranteed by Fannie Mae and Freddie Mac.

Obama's veto message also alluded to a requirement for the construction of an oil pipeline from Canada to Texas that Republicans said would create 20,000 jobs. The provision is designed to force the administration's hand, since Obama announced recently that despite three years of review under two administrations, he was putting off a decision until after the election.

The measure would permit Obama to block the Keystone XL project if he deemed its construction to be not in the national interest.

The House-passed bill also includes an extension of unemployment benefits that would scale back what is currently in place. The White House said 3.3 million people would be cut off under its terms. Another part of the bill, to block proposed regulations limiting toxic emissions from industrial incinerators, drew objections from the White House.

The legislation would avert a threatened 27 percent cut in payments to doctors who treat Medicare patients, and Obama and Democrats are willing to accept that.

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Associated Press writers Donna Cassata, Alan Fram and Andrew Taylor contributed to this story