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Senate Has a Payroll Tax Deal and a Saturday Vote

Updated: 8:40 p.m.

Senate leaders have agreed in principle  to a two-month deal extending the payroll tax holiday, unemployment benefits and the Medicare doc fix that also includes a provision on a controversial oil pipeline the president has said he would reject.

Senate Majority Leader Harry Reid (D-Nev.) and Minority Leader Mitch McConnell (R-Ky.) began intense negotiations to reach agreement Wednesday evening, after Speaker John Boehner encouraged them to find a deal and send it to the House. Reid offered Senate Republicans a $190 billion full-year extension of the expiring provisions and the short-term two-month package — which sources indicated will cost between $30 billion and $40 billion.

But leaders were unable to resolve differences over how to pay for the larger bill, leaving the more modest package as the last resort for lawmakers itching to go home for the holidays.

The agreed-upon two-month deal is slated for a Saturday morning vote. It will be one in a series of votes that will include a sweeping $1 trillion omnibus bill the House approved earlier today. The agreement is a clean extension of current law — meaning Democrats did not get the expansion of the payroll tax holiday they were seeking and Republicans did not get the substantial overhaul of unemployment insurance benefits that had passed in the House. Lawmakers emerging from late-night caucus meetings in which leaders presented the deal said it would be paid for by additional fees levied from Fannie Mae and Freddie Mac.

Democratic aides familiar with the negotiations between Reid and McConnell said the full-year plan would have been offset with a handful of measures, including $120 billion in mandatory cuts identified by the Joint Committee on Deficit Reduction and a variety of new revenues, including $3 billion from a corporate jet tax and reforms to the tax code for Americans who file as S corporations. McConnell dismissed the pay-fors proposed by Democrats for the larger bill as “not credible.” Republicans had wanted to include cuts to Medicare benefits as part of the offsets.

The final deal did not include other policy riders House Republicans approved earlier this week, such as an easing of environmental regulations for paper mills and chemical manufacturers. It also did not include any language on any of the dozens of expiring tax extenders.

Though both leadership teams on the Senate side expressed optimism that the short-term bill would pass the chamber with ease, it is still unclear how the legislation will do in the House, where 86 Republicans voted against the omnibus spending bill earlier today.

“I’m optimistic that we’re going to do well in the morning, and obviously I keep the Speaker informed as to what I’m doing,” McConnell said tonight when asked whether he had assurances from Boehner that this deal could clear the House.

The inclusion of the Keystone XL pipeline provision was a huge messaging win for Republicans. President Barack Obama has said publicly that he would “reject” any bill that came to his desk with language about the pipeline’s expansion — and now his word will be tested. The White House softened its position on the issue earlier in the day, saying that talks were fluid. At today’s briefing Press Secretary Jay Carney said he did not want to negotiate from the podium.

The language in the bill, if it is approved Saturday, would force the administration to make a decision to approve the pipeline within 60 days — at approximately the same time the extenders package is set to expire yet again.

A senior administration official told Roll Call tonight that the deal meets the president’s demand that Congress not go home without preventing a tax increase for 160 million Americans. The official said that the president had succeeded in pushing Republicans into supporting a payroll tax cut extension, and said it was now inconceivable  that the GOP would not extend the tax cut for the rest of the year after agreeing to a two-month extension.

As for the Keystone pipeline language, the official noted that the president said he would not accept an attempt by Congress to mandate construction of the pipeline, but the House language does not do that; it speeds up the review process.

Indeed, White House Communications Director Dan Pfeiffer tweeted earlier this week that the House language would effectively kill the pipeline by short-circuiting the review process.

“How will the GOP explain to their Members that their bill doesn’t force the president to approve Keystone, it essentially kills it?” he tweeted.

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