Payroll tax negotiations off to slow start

Negotiators on Capitol Hill agreed Wednesday to try to extend a payroll tax cut worth about $1,000 this year for a typical worker through the end of the year.

But they remain far apart on how to pay for the extension, and for jobless benefits for millions, without swelling the national debt.

Working in a rare open meeting, a House-Senate panel Wednesday began its negotiations on the payroll tax and jobless benefits measure - core components of President Barack Obama's jobs agenda - by signaling progress on second-tier issues regarding overhauling unemployment insurance. But the talks soon ran aground over House GOP proposals to permit states to require unemployed people to pass drug tests to receive benefits or get high school diplomas.

A Feb. 29 deadline looms but the negotiating panel chair, Rep. Dave Camp, R-Mich., is proceeding methodically and has yet to focus the talks, at least publicly, on the central issue: how to find more than $150 billion in deficit savings through some combinations of spending cuts, new fees and closures of tax loopholes.

"You've got to crawl before you can walk," Camp said.

Senate Finance Committee Chairman Max Baucus, D-Mont., the lead negotiator for Democrats, hinted of potential problems ahead in assembling a bipartisan package of deficit cutting proposals to pay for the full payroll tax extension. Baucus said negotiators might be forced to accept a shorter renewal of the tax cut.

The 2-percentage-point cut in the payroll tax adds about $20 a week to the paycheck of a worker making a $50,000 annual salary, while jobless benefits average about $300 a week. Democrats argue that the two measures are pumping billions into an economy that's still suffering from a lack of consumer demand. Obama seems to have the upper hand politically, and Republicans are going along, though without much enthusiasm.

At the same time, the panel is grappling with how to address almost a 30-percent scheduled cut in the fees that Medicare pays to doctors. The cut is the product a flawed funding-formula that dates back to 1997, but the rapidly growing cost of fixing the mess is now in the range of $300 billion over 10 years. Lawmakers in both parties are grabbing at war savings to claim the fix won't add to deficits still exceeding $1 trillion a year.

The negotiators have adopted a cooperative tone that contrasts sharply with the vitriol of last year, but the panel is going to have to pick up the pace to meet a deadline just four weeks away.

Major disagreements over House GOP add-ons like a provision to block new federal rules on incinerators and industrial boilers and a potential Republican bid to try to use the legislation to permit construction of the Keystone XL oil pipeline are likely to be resolved by talks involving the White House and higher-ranking lawmakers like House Speaker John Boehner, R-Ohio.

In December, the House passed a yearlong extension financed by freezing the pay of federal workers and requiring them to contribute more to their pensions, cutting money to implement Obama's health care law, forcing higher-income seniors to pay higher Medicare premiums and blocking illegal immigrants from collecting child tax credit refunds.

Senate Democratic and Republicans leaders, however, failed to agree on a measure that might quickly pass in the days before Christmas and the chamber instead advanced a two-month extension. In private talks, Democratic Majority Leader Harry Reid of Nevada objected to numerous House provisions, including cuts affecting federal workers.

Reid also publicly came out Tuesday against the GOP effort to block illegal immigrants from getting refundable child tax credits. A Treasury Department study last year found that illegal immigrants were paid $4.2 billion in such refunds claimed on their 2010 tax returns, but efforts to stop the practice have caused an eruption in the Democratic-leaning Hispanic community.

Reid signaled he'll resist the idea, though his opposition is not the last word on the matter.

"I just think the child tax credit is working just fine and there's no need to punish children," Reid said.