Senate approves extension of payroll tax cut, jobless benefits

WASHINGTON -- The Senate voted Saturday to temporarily avert a Jan. 1 payroll tax increase and benefit cutoff for the longtime unemployed, forcing a reluctant President Barack Obama to make an election-year choice between unions and environmentalists over whether to build an oil pipeline through the heart of the country.

The action set up a House vote Monday on the legislation.

With the still-reeling economy serving as a backdrop, the Senate's 89-10 vote belied a tortuous battle between Democrats and Republicans that produced the compromise two-month extension of the expiring tax breaks and jobless benefits and forestalled cuts in doctors' Medicare reimbursements.

It also capped a year of divided government marked by raucous partisan fights that tumbled to the brink of a first-ever U.S. default and three federal shutdowns, only to see eleventh-hour deals emerge. And it put the two sides on track to revisit the payroll tax cut early next year as the fights for control of the White House and Congress heat up.

However, House GOP leaders held a conference call Saturday with rank-and-file lawmakers in which participants said strong anger was expressed about the Senate bill, including its lack of House-approved cuts in last year's health care overhaul law and its failure to erase the reductions in doctors' payments for more than two months.

"You can't have an economic recovery with this," Rep. Jack Kingston, R-Ga., said of the bill "If the Senate is incapable of doing that, we don't have to accept it."

A House GOP aide said afterward, "Members are overwhelmingly disappointed in the Senate's decision to just 'kick the can down the road' for two months. No announcement was made regarding the schedule or plans."

Nevada Sens. Harry Reid and Dean Heller voted for the two-month compromise although each said it merely postpones big decisions on payroll taxes and unemployment benefits.

"Congress did the right thing today by putting partisanship aside," Heller, a Republican , said in a statement. "However, these last-minute quick fixes cause too much instability. Congress should extend these benefits for the entire year."

Reid accused Republicans of holding out against extending the Social Security payroll tax cut for an entire year unless it was accompanied by changes in Medicare that Democrats said would harm some seniors.

"For the next two months, Democrats will work to extend the middle-class tax cut through the end of the year," Reid, a Democrat , said in a statement.

By 67-32, senators gave final congressional approval to a separate $1 trillion bill financing the Pentagon and scores of other federal agencies through next September. That measure avoided a shuttering of government offices that otherwise would have occurred this weekend when temporary financing expired.

The tax legislation delivers tax cuts and jobless benefits that some Republicans opposed. It also represents a rebuff of Obama's original demands for a yearlong payroll tax reduction for 160 million workers that was to be even deeper than this year's cut, extended to employers and paid for by boosting taxes on the highest-earning Americans.

The measure's $33 billion price tag will be paid for instead by raising fees that government-backed Fannie Mae and Freddie Mac will charge to back new mortgages or refinancings, beginning next year. When fully phased in, those increases could cost a person with a $200,000 mortgage about $17 a month.

Despite the changes, Obama praised the Senate for passing the bill and prodded the Republican-run House to give it final approval in Monday's vote . He exhorted lawmakers to extend the tax cuts and jobless aid for the entire year, saying it would be "inexcusable" not to.

"It should be a formality, and hopefully it's done with as little drama as possible when they get back in January" from their holiday recess, he said.

The Senate adjourned for the year after its votes Saturday.

While Obama and Democrats used the fight to portray themselves as defenders of beleaguered middle- and lower-income people, Republicans used it to cast themselves as champions of job creation.

Headlining that was a provision they inserted forcing Obama to make a decision within two months on whether to allow construction of the proposed 1,700-mile Keystone XL pipeline, which is to deliver up to 700,000 barrels of oil daily from tar sands in Alberta, Canada, to refineries in Texas. The language requires him to issue the needed permit unless he declares the pipeline would not serve the national interest.

Unions have clamored for the thousands of jobs the project could create. Environmentalists have decried the huge amounts of energy it would take to extract the oil. Obama originally announced he was delaying a decision until 2013, which would have allowed him to avoid choosing between two Democratic constituencies before Election Day next November.

When the House inserted the language into its version of the payroll tax bill this month, Obama said he would "reject" the legislation if it retained the Keystone provision. He abandoned that stance this past week as GOP leaders said they would insist on keeping the Keystone language and the final deal jelled.

"The only thing standing between thousands of American workers and the good jobs this project will provide is a presidential decision," said Senate Minority Leader Mitch McConnell, R-Ky.

An administration official said Friday that Obama would almost surely refuse to grant the permit .

Stephens Washington Bureau Chief Steve Tetreault contributed to this report.