Holiday stalemate over payroll tests Obama, GOP

Updated 11:25 a.m. ET

WASHINGTON -- House and Senate leaders traded demands Wednesday but remained mired in a bitter holiday-season stalemate that is threatening 160 million workers with Jan. 1 tax increases and millions of the long-term unemployed with an end to their benefits.

In a letter, Senate Majority Leader Harry Reid urged Speaker John Boehner to bring House lawmakers back to Washington and approve a bipartisan measure the Senate approved overwhelmingly last weekend. That bill would extend the payroll tax cut and jobless benefits for two months, giving bargainers time to agree to a more expensive, yearlong measure.

"Because we have a responsibility to assure middle-class families that their taxes will not go up while we work out our differences, we must pass this immediate extension first," wrote Reid, D-Nev.

Minutes later, Boehner, R-Ohio, and other top House Republicans invited reporters into a meeting where they urged Reid to bring senators back to town so they can negotiate over a yearlong extension of the tax cut and jobless benefits. The bill would also postpone a scheduled Jan. 1 cut of 27 percent in payments to doctors who treat Medicare patients.

"All we're asking for is to get Senate members over here to work with us to resolve our differences so we can do what everybody wants to," Boehner said.

The tax increases, as well as cuts to Medicare doctors' fees and a lapse in jobless benefits, are due Jan. 1. They are looming even though the combatants agree that they shouldn't happen. Instead, the warring factions have painted themselves into a corner.

Obama to House Republicans on payroll tax cut: "This is not a game"
House rejects payroll tax cut compromise

A House vote Tuesday scuttled a bipartisan Senate deal for a two-month extension of all three policies: the payroll tax cuts, jobless benefits and Medicare fees.

After the House killed the Senate measure on a 229-193 vote, Mr. Obama signaled he'll use his presidential megaphone to try to force Republicans controlling the House into submission.

"This is not a game," Mr. Obama said. "The clock is ticking."

The Obama campaign promptly took to Twitter and Facebook to fight it out. With their candidate's poll numbers rising, Democratic operatives seemed almost giddy at the prospect of a prolonged battle.

"The response was overwhelming," said a White House official requiring anonymity to discuss Obama's political efforts.

Republican lawmakers relished the battle as well, though some of them are too inexperienced to know that presidents -- regardless of party -- usually win such high-profile fights, like President Bill Clinton did over a 1995-96 government shutdown or President George W. Bush did in skirmishes on anti-terror policies.

House Republicans instead rallied around a plan passed last week that would have extended the payroll tax cut for one year. But that version also contained spending cuts opposed by Democrats and tighter rules for jobless benefits.

House Republicans sought to portray the Democrats as the intransigent force in the showdown.

"I need the president to help out!" House Speaker John Boehner told reporters Tuesday to Republican applause.

Appearing on "The Early Show" Wednesday, Rep. Michele Bachmann, the Minnesota Republican in the middle of her own presidential campaign, blasted Mr. Obama as being "AWOL" during the process and said that Senate Majority Leader Harry Reid "essentially threw a bomb over into the House and then the Democrats left town."

If legislation isn't passed by New Year's Day, payroll taxes will go up by almost $20 a week for a worker making a $50,000 salary. Almost 2 million people could lose unemployment benefits as well, and doctors would bear big cuts in Medicare payments.

Whatever the stakes, there was little indication that Republicans would get their wish for negotiations with the Senate any time soon. Senate Majority Leader Harry Reid, D-Nev., issued a statement saying he would be happy to resume talks on a yearlong measure -- "but not before" the House ratifies the two-month bill and sends it to Mr. Obama for his signature.

Given Mr. Obama's remarks and Reid's refusal to negotiate, it was unclear what leverage Republicans had in the year-end standoff. It appeared likely the partisan disagreement could easily persist past Christmas and into the final week of the year.

A little-noticed element of the brawl was that the House-Senate parliamentary situation, which can be a critical factor, is all messed up. The Senate adjourned Saturday until Jan. 23 except for so-called pro forma sessions in which legislative business -- like responding to the House moves -- is basically impossible unless all 100 senators agree. That's never a sure thing.

The standoff was sowing confusion among business executives, who were running out of time to adapt to any new payroll tax regimen. Even the Senate's proposed two-month extension was creating headaches because it contained a two-tiered system geared to ensuring that higher-income earners paid a higher rate on some of their wages, according to a trade group.

"There's not time enough to do that in an orderly fashion," said Pete A. Isberg, president of the National Payroll Reporting Consortium trade group. "We're two weeks away from 2012." He wrote a letter to congressional leaders this week warning that the Senate bill "could create substantial problems, confusion and costs."

Meanwhile, Medicare announced Tuesday that, as it has in the past when doctors' reimbursements have been cut through congressional inaction, it would withhold physicians' payments for two weeks in January to avoid passing on a 27 percent cut in Medicare fees. The hope is that the problem gets fixed by then.