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Senate Passes Two-Month Payroll Tax Cut, Keystone Oil Pipeline Provision

Also OKs $1 trillion spending measure

WASHINGTON (AP) -- Senators racing for the exits after a year of bitter battles passed legislation Saturday that would extend a Social Security payroll tax cut and jobless benefits for just two months, setting the stage for the next fight until February.

While a partial victory for President Barack Obama's year-end jobs agenda, the measure awaiting House approval next week contains a provision demanded by Republicans to pressure the White House into approving construction of a 1,700-mile Canada-to-Texas Keystone XL oil pipeline that promises thousands of jobs.

Democratic and GOP leaders option for the short-term extension after failing to agree on big enough spending cuts to pay for a full-year renewal of the payroll tax cut. The 2 percentage point tax cut affects 160 million taxpayers. The weekly jobless payments average about $300 for millions of people who have been out of work for six months or more.

The measure was approved by an 89-10 vote during a Saturday session.

The Senate also passed a $1 trillion-plus catchall spending measure setting the day-to-day budgets of 10 Cabinet agencies. The House cleared the spending bill Friday, and the Senate approved it 67-32.

In a statement, White House communications director Dan Pfeiffer indicated Obama would sign the two-month extension measure, saying it had met his test of "preventing a tax increase on 160 million hardworking Americans" and avoiding damage to the economy recovery.

The statement made no mention of the pipeline.

The legislation, would require the president to grant a permit, but allows Obama to opt not to do so if he determines that the pipeline is "not in the national interest." One senior administration official said the president would almost certainly refuse to grant a permit. The official was not authorized to speak publicly.

The developments came a few hours after the White House publicly backed away from Obama's threat to veto any bill that linked the payroll tax cut extension with a Republican demand for a speedy decision on the 1,700-mile Keystone XL oil pipeline proposed from Canada to Texas Gulf Coast refineries.

Obama said on Dec. 7 that "any effort to try to tie Keystone to the payroll tax cut I will reject. So everybody should be on notice."

Obama recently announced he was postponing a decision until after the 2012 elections on the much-studied proposal. Environmentalists oppose the project, but several unions support it, and the legislation puts the president in the uncomfortable position of having to choose between customary political allies.

Republican senators put the price of the two-month package at between $30 billion and $40 billion said the cost would be covered by raising fees on new mortgages backed by Fannie Mae and Freddie Mac.

The fees, drawn from a Treasury Department housing finance market reform plan, would add several thousand dollars to the 30-year cost of home loans guaranteed by mortgage giants Fannie Mae Freddie and Freddie Mac and the Federal Housing Administration.

A worker making a $100,000 salary would reap a tax cut of about $330 through the short-term payroll tax extension.

A version of the fee that circulated overnight would effectively raise the interest rate on a mortgage by one-tenth of one percentage point, but the still-undetermined final version - awaiting analysis from the Congressional Budget Office - was expected to be lower.

The measure also provides a 60-day reprieve from a scheduled 27 percent cut in the fees paid to doctors who treat Medicare patients.

Officials said that in private talks, the two sides had hoped to reach agreement on the full one-year extension of the payroll tax cut and unemployment benefits that Obama had made the centerpiece of the jobs program he submitted to Congress last fall.

Those efforts failed when the two sides could not agree on enough offsetting cuts to blunt the measure's impact on the debt.

The failure tees up the issue again for early next year, but it won't get any easier to agree on spending cuts. The

"We'll be back discussing the same issues in a couple of months, but from our point of view, we think the keystone pipeline is a very important job-creating measure in the private sector that doesn't cost the government a penny," said Sen. Mitch McConnell of Kentucky, the Republican leader.

Neither House Speaker John Boehner, R-Ohio, nor his aides participated in the negotiations, although McConnell said he was optimistic about the measure's chances for final approval. The payroll tax cut is unpopular in GOP ranks and another vote in two month could present a headache for GOP leaders.

The State Department, in an analysis released this summer, said the pipeline project would create up to 6,000 jobs during construction, while developer TransCanada put the total at 20,000 in direct employment.

The 1,700-mile pipeline would carry oil from western Canada to Texas Gulf Coast refineries, passing through Montana, South Dakota, Nebraska, Kansas and Oklahoma.

The spending bill would lock in cuts that conservative Republicans won from the White House and Democrats earlier in the year.

Republicans also won their fight to block new federal regulations for light bulb energy efficiency, coal dust in mines and clean water permits for construction of timber roads.

The White House turned back GOP attempts to block limits on greenhouse gases, mountaintop removal mining and hazardous emissions from utility plants, industrial boilers and cement kilns.

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