McConnell Expects Bipartisan Deal on Tax Cut

WASHINGTON | Sun Dec 11, 2011 5:02pm EST

(Reuters) - Senate Republican Leader Mitch McConnell predicted on Sunday that Congress will renew a popular payroll tax cut, but it remained unclear how lawmakers will resolve deep differences before the Dec. 31 deadline.

While he did not unveil a new deal, McConnell signaled that he and others anticipate having one soon.

We're going to reach an agreement, McConnell told Fox News Sunday, noting there is bipartisan support for extending the tax cut.

The 4.2 percent payroll tax that workers pay to fund the Social Security retirement system will return to 6.2 percent in January if Congress fails to act. That would raise taxes on 160 million Americans an average of about $1,000 per family.

Democrats have led the charge to extend the tax break, raising pressure on Republicans to join in or face possible voter backlash in next November's congressional elections.

The House of Representatives is set to approve a Republican plan as early as Tuesday to extend the tax cut, tying it to a bid to accelerate approval of TransCanada Corp's Keystone XL pipeline project between the United States and Canada.

Senate Democratic Leader Harry Reid has said the plan would be rejected by his chamber because of the Keystone pipeline provision opposed by President Barack Obama.

Senior congressional aides predict that Reid and the top congressional Republican, House Speaker John Boehner, will soon take the leading in brokering a deal -- just as they did in a budget fight this year to avert a partial government shutdown.

Reid and Boehner would have to bridge major differences, starting with how to cover the projected $110 billion cost to extend the tax cut for one year.

Democrats favor a surtax on the rich, which Republicans denounce as a tax hike on job creators. Republican propose instead extending a pay freeze on federal workers.

Assistant Senate Democratic Leader Dick Durbin, appearing on NBC's Meet the Press, declined to offer any predictions on whether the tax cut would be extended.

But Durbin said, It is the highest priority of the president and Democrats in Congress.

This is a make-or-break moment for the middle class, said Durbin.

Republican Senator Lindsey Graham, appearing on the same show, said, The payroll tax will get extended .... and we will find a way to pay for it in a bipartisan fashion.

Graham predicted that the proposed surtax on millionaires will not be part of the final deal, and that the Keystone pipeline project probably won't be included in it, either.

Backers of the project say it will create an estimated 20,000 jobs and help curb a chronically high U.S. unemployment rate.

Obama has said he wants to delay a decision on the project pending further studies. That would push the decision past next year's election, and would avoid angering environmentalists ahead of the campaign.

Democratic and Republican aides say dropping the pipeline provision, along with the surtax on millionaires, could be part of a final deal.

So could, they say, narrowing differences over a bid to renew jobless benefits, which are also set to begin to expire at the end of this month.

(Additional reporting by Andy Sullivan; editing by Jackie Frank)