Senate OKs $1 trillion budget bill, Social Security payroll tax cut

WASHINGTON -- The Senate passed legislation Saturday extending a Social Security payroll tax cut and jobless benefits for just two months, handing President Barack Obama a partial victory while setting the stage for another fight in February.

It also brought a peaceful end to a yearlong battle over spending by passing a $1 trillion-plus catchall budget bill that wraps together the day-to-day budgets for 10 Cabinet departments and military operations in Iraq and Afghanistan. The House passed the measure Friday, and the White House has signaled that Obama will sign it.

The renewal of the 2 percent cut in the Social Security payroll tax for 160 million workers and unemployment benefits averaging about $300 a week for the additional millions of people who have been out of work for six months or more is a modest step forward for Obama's year-end jobs agenda.

As a condition for GOP support of the payroll tax measure, Obama has to accept a provision that forces him to decide within 60 days whether to approve or reject a proposed a Canada-to-Texas oil pipeline that promises thousands of jobs.

Obama didn't reference the pipeline issue in a brief appearance at the White House after the vote. He welcomed the Senate's passage of the payroll tax cut and unemployment insurance extension and said it would be "inexcusable" for Congress not to extend them for the rest of 2012 when lawmakers return from their holiday break.

The budget bill, passed 67-32, heads to the White House for Obama's signature; the payroll tax measure won a 89-10 tally that send it back to the House -- where many Republicans only reluctantly support it -- for a vote early next week.

A spokesman for House Speaker John Boehner, R-Ohio, would not predict whether the House would accept the Senate payroll tax measure, saying GOP leaders would have to discuss it with the rank and file. But Democrats assume Senate Republicans would not have allowed the short-term measure to advance without a signal from Boehner that the House would go along.

Democratic and GOP leaders opted for the short-term extension of the payroll tax and jobless benefits measure after failing to agree on big enough spending cuts to pay for a full-year renewal. The measure also provides a 60-day reprieve from a scheduled 27 percent cut in the fees paid to doctors who treat Medicare patients.

The $33 billion cost of the measure would be covered by raising fees on new mortgages backed by Fannie Mae and Freddie Mac.

The fees, drawn from a Treasury Department housing finance market reform plan, would effectively raise the interest rate on home loans guaranteed by the mortgage giants and the Federal Housing Administration by one-tenth of a percentage point.

The idea is to open up the market to private companies currently priced out by the implicit subsidies of Fannie and Freddie.

The White House says the fee would increase the monthly cost of a typical $220,000 mortgage by almost $15 a month. Over 30 years, the fees would increase the total cost of such a mortgage by more than $5,000.

In contrast, a worker making a $100,000 salary would reap a tax cut of about $330 through the two-month extension of the payroll tax cut. A worker with a typical $50,000 salary would get just a $165 tax cut.

Officials said that in private talks, the two sides had hoped to reach agreement on the full one-year extension of the payroll tax cut and unemployment benefits that Obama had made the centerpiece of the jobs program he submitted to Congress last fall.

Those efforts failed when the two sides could not agree on enough offsetting cuts to blunt the measure's effect on the debt.

The failure tees up the issue again for early next year, but it won't get any easier to agree on spending cuts.

Neither House Speaker Boehner nor his aides participated in the negotiations, although McConnell said he was optimistic about the measure's chances for final approval. The payroll tax cut is unpopular in GOP ranks and another vote in two months could present a headache for GOP leaders.

On the controversial Keystone XL pipeline, the legislation requires the president to grant a permit unless he makes a determination that it is "not in the national interest." One senior administration official said the president would almost certainly refuse to grant a permit. The official was not authorized to speak publicly.

The White House on Friday backed away from Obama's earlier threat to veto any bill that linked the payroll tax cut extension with a Republican demand for a speedy decision on the proposed 1,700-mile pipeline. Obama said on Dec. 7 that "any effort to try to tie Keystone to the payroll tax cut I will reject. So everybody should be on notice."

The president recently announced he was postponing a decision on the much-studied pipeline until after the 2012 election. Environmentalists oppose the project, but several unions support it. The legislation puts the president in the uncomfortable position of having to choose between customary political allies.

The State Department, in an analysis released this summer, said the pipeline project would create up to 6,000 jobs during construction, while developer TransCanada put the total at 20,000 in direct employment.

The pipeline would carry oil from western Canada to Texas Gulf Coast refineries, passing through Montana, South Dakota, Nebraska, Kansas and Oklahoma.

The spending bill locks in spending cuts that conservative Republicans won from the White House and Democrats earlier in the year.

Republicans also won their fight to block new federal regulations for light bulb energy efficiency, coal dust in mines and clean water permits for construction of timber roads.

The White House turned back GOP attempts to block limits on greenhouse gases, mountaintop removal mining and hazardous emissions from utility plants, industrial boilers and cement kilns.

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Associated Press writers David Espo, Alan Fram, Donna Cassata and Jim Kuhnhenn contributed to this report.