House leaders accept Senate's payroll tax terms

WASHINGTON -- House Republicans on Thursday bowed to demands by President Barack Obama, congressional Democrats and fellow Republicans for a short-term renewal of payroll tax cuts for all workers. The breakthrough almost certainly spares workers an average $20 a week tax increase Jan. 1.

After days of wrangling that Speaker John Boehner acknowledged "may not have been politically the smartest thing in the world," the Ohio Republican abruptly changed course and dropped demands for immediate holiday season talks with the Senate on a full-year measure that all sides said they want.

The House and Senate plan to act on the two-month extension today.

House Republicans were under fire from their constituents and GOP establishment figures incensed that they would risk losing the tax cut issue to Democrats at the dawn of the 2012 presidential and congressional election year.

"In the end House Republicans felt like they were re-enacting the Alamo, with no reinforcements and our friends shooting at us," said Rep. Kevin Brady, R-Texas.

Boehner said he expects both House and Senate to pass a new bill by Christmas that would renew the tax break while congressional negotiators work out a one-year measure that would also extend jobless benefits for millions of Americans and prevent doctors from absorbing a big cut in Medicare payments.

The developments were a clear win for Obama. The payroll tax cut was the centerpiece of his three-month campaign-style drive for jobs legislation that seems to have contributed to an uptick in his poll numbers.

"Because of this agreement, every working American will keep his or her tax cut -- about $1,000 for the average family," Obama said in a statement. "That's about $40 in every paycheck. And when Congress returns, I urge them to keep working to reach an agreement that will extend this tax cut and unemployment insurance for all of 2012 without drama or delay."

If the cuts had expired as scheduled, 160 million workers would have seen a 2 percentage point increase in their Social Security taxes. And up to 2 million people without jobs for six months would start losing unemployment benefits averaging $300 a week.

The GOP retreat ends a tense standoff in which Boehner's House Republicans came under great pressure to agree to the short-term extension passed by the Senate on Saturday. The speaker was initially open to the idea, but rank-and-file Republicans revolted and the House instead insisted on immediate talks.

The conflict arose after the Senate, on a bipartisan vote, passed legislation last week to extend for two months the payroll tax cut, jobless benefits and doctors' Medicare fees that otherwise would have been cut 27 percent. The House had just days before passed a full-year extension that included a series of conservative policy prescriptions unpalatable to Obama and congressional Democrats.

Obama, Republicans and congressional Democrats all said they preferred a one-year extension but the politics of achieving that eluded them. All pledged to start working on that in January.

"Has this place become so dysfunctional that even when we agree to things we can't do it?" Obama asked. "Enough is enough.".

The top Senate Republican, Mitch McConnell of Kentucky, was a driving force behind Thursday's agreement, imploring Boehner to accept the deal that McConnell and Senate Democratic Leader Harry Reid had struck last week and passed with overwhelming support in both parties.

"There remain important differences between the parties on how to implement these policies, and it is critical that we protect middle-class families from a tax increase while we work them out," Reid said after Boehner's announcement.

The breakthrough emerged as a firewall erected by tea party-backed House Republicans crumbled Thursday.

"I don't think that my constituents should have a tax increase because of Washington's dysfunction," said freshman Rep. Sean Duffy, R-Wis.

The Republican establishment, too, put new pressure on House Republicans to compromise.

The 2008 GOP presidential nominee, John McCain, former Bush administration confidant Karl Rove and The Wall Street Journal editorial page were among conservative voices urging House Republicans to retreat.

Just hours before he announced the breakthrough, Boehner had made the case for a yearlong extension. But on a brief late afternoon conference call, he informed his colleagues it was time to yield.

"He said that as your leader, you've in effect asked me to make decisions easy and difficult and I'm making my decision right now," said Rep. Jack Kingston, R-Ga., paraphrasing Boehner's comments.

Kingston said the conference call lasted about three minutes and Boehner did not give anyone time to respond.

Almost forgotten in the firestorm is that McConnell and Boehner had extracted a major victory last week, winning a provision that would require Obama to make a swift decision on whether to approve construction of the Keystone XL oil pipeline, which would bring Canadian oil to the U.S. and create thousands of construction jobs. To block the pipeline, Obama would have to declare that is not in the nation's interest.

Obama wanted to put the decision off until after the 2012 election.

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