Senate approves $1 trillion budget bill, payroll tax cut

The Senate cast its final votes for the year on Saturday morning, reaching agreement on a two-month payroll tax extension and a $1 trillion budget bill funding major government functions through September, ending a week of divide over the two bills that had led to more threats of a government shutdown.

Passed 67-32, the omnibus spending bill wraps together funding for most government agencies and military operations in Iraq and Afghanistan through the end of the fiscal year in September. But lawmakers were only able to agree to a temporary extension of the payroll tax relief, approving by 89-10 a 2-percent cut through February.

Lawmakers had worked behind closed doors since Thursday, seeking a compromise on both bills after party leaders had tried to turn them into bargaining tactics to force concessions from each other.

They reached agreement on the spending legislation only after Republicans agreed to remove a provision blocking President Obama from easing regulations on visiting and sending money to relatives in Cuba.

While the spending bill deal was struck early enough for the House to approve it yesterday, negotiations over the payroll tax relief extended late into Friday night. The House will return Monday to approve the payroll tax deal, and President Obama is expected to sign both pieces of legislation.

The payroll tax relief represented a partial victory for Mr. Obama, who had pushed for renewing a 2-percent payroll tax cut as part of his year-end jobs agenda.

But it also gave in to Republican demands that the president take quick action on the Keystone XL Pipeline instead of pushing the controversial issue until after the 2012 election.

Although Mr. Obama had backpedaled on his previously firm stance against including the Keystone provision in payroll legislation, he didn’t mention its inclusion in the final agreement. Instead, he applauded the Senate’s action and expressed hope that Congress will extend the cuts through 2012.

“While this agreement is for two months, it is my expectation — in fact it would be inexcusable for Congress not to further extend this middle-class tax cut for the rest of the year,” Mr. Obama said. “It should be a formality. And hopefully it’s done with as little drama as possible when they get back in January.”

Democratic and GOP leaders had both sought to extend the payroll tax relief through next year, but resorted to a short-term extension when they couldn’t reach agreement on how to pay for it. While Democrats wanted to raise taxes on the richest Americans, Republicans wanted to require seniors to pay more for Medicare.

Scored by the Congressional Budget Office to save $2.9 billion over 10 years, the final legislation will be paid for by raising fees on new mortgages backed by Fannie Mae and Freddie Mac.

The deal also extends jobless benefits for the long-term unemployed and delays a scheduled 27-percent Medicare cut for doctors for 60 days.

Democrats shrugged off their defeat on the Keystone provision, saying the deal puts them in a good position to push for cutting payroll taxes through the rest of the year. New York Sen. Chuck Schumer said the GOP’s usual bargaining points won’t be available to them, now that the government has been funded for the next nine months.

“The Republicans will not have the leverage of either shutting down the government or raising the debt ceiling, and they’re going to be pretty hard-pressed to block the payroll tax cut continuation,” Mr. Schumer said.

And while Republicans claimed victory on the Keystone provision, some lawmakers were critical of the omnibus legislation, which allowed Congress to fund the government in one large bill instead of going through the regular appropriations process.

“When we take up each of these bills individually, it is a better way than en masse,” Sen. Kelly Ayotte, New Hampshire Republican. “I think doing the regular budgeting process is very important. We have to do a much better job of scrutinizing the spending around here.”