12/15/2011 07:55 pm ET Updated Dec 15, 2011

Payroll Tax Cut Extension: Leaders Near Deal, But Still Eye Two-Month Back-Up Plan [UPDATED]

WASHINGTON -- Congressional leaders cut a deal to keep the government funded Thursday night, but extending a payroll tax cut and other items that expire at the end of the year remained in limbo, sources told The Huffington Post.

Negotiators appeared to be closing in on an agreement even on the contentious 2 percent payroll tax cut, as well as extending emergency unemployment benefits, forestalling a mandated cut in Medicare payments to doctors, and heading off an increase in the alternative minimum tax for the next year. All of those items expire on Jan. 1.

A Democratic source said the two sides were about half of the way to finding the $200 billion that would be needed.

Talks appeared positive enough that negotiators were willing to work deep into the night. But if they stall, a two-month extension of all of those measures was being discussed as a fall-back option.

"They'll keep working into the weekend if they have to," the Democrat said.

Such a move would at least take the pressure off and lower the temperature of the debate, as well as let lawmakers go home for the holidays without cutting the paychecks of some 160 million Americans by 2 percent. It would also be easier to find ways to pay for the short-term deal.

Once source cautioned, however, that Republicans were not yet ready to accept any sort of temporary fix.

But with the signs of progress on the payroll issues, and the agreement on the omnibus bill to keep the government running, both sides seemed optimistic.

In order to accept the House spending plan, Democrats insisted that a number of unpalatable riders be dropped or changed.

Among them were provisions aimed at blocking environmental regulations, measures that would have blocked the military from treating gays more equitably, language that would have blocked funding to challenge the Defense of Marriage Act, and many other attacks on Democratic priorities. The provisions also included attempts to cut parts of the health care reform law, public broadcasting, Planned Parenthood, and key parts of both the Commodity Futures Trading Commission and the new Consumer Financial Protection Bureau.

For the CFTC, which oversees the risky derivatives that helped spark the recession, a budget of $205 million was preserved to allow it to pursue the financial reforms passed last year.

Republicans have already passed a version of the payroll tax extension that Democrats believe is also packed with poison pills. But in another sign negotiations were proceeding, Senate Majority Leader Harry Reid (D-Nev.) brought that measure to the floor of the Senate Thursday night, and started the clock ticking for a vote that would likely come Saturday morning. Reid said that an agreement could possibly be reached to proceed sooner.



Nine Poison Pills In The GOP Payroll Tax Extension Bill: