12/16/2011 01:54 pm ET Updated Dec 16, 2011

Keystone Pipeline Belongs In Payroll Tax Deal, Republicans Insist (UPDATE)

WASHINGTON -- House and Senate Republican leaders on Friday threw a potentially major wrench into late-stage payroll tax cut debates by hinting, and then demanding, that any bill include the controversial Keystone pipeline.

House Speaker John Boehner (R-Ohio) fired the first warning shot, saying he would attach language on the oil pipeline to Senate Democrats' efforts to advance a short-term payroll tax cut extension.

"These rumors that are floating around here about a two-month extension, I'll just say this: If that bill comes over to us, we will make changes to it," Boehner told reporters Friday morning. "And I will guarantee you that the Keystone pipeline will be in there when it goes back to the Senate."

Senate Minority Leader Mitch McConnell (R-Ky.) later upped the ante, via a spokesman, saying he wouldn't accept any payroll tax cut deal, regardless of its timeline, unless it included the pipeline provision.

"Sen. McConnell will not support any bill without the Keystone XL language as part of the agreement," McConnell spokesman Don Stewart said in a statement.

The move by Republican leaders is a direct challenge to President Barack Obama, who has already said he would flatly reject any payroll tax cut extension tied to Keystone.

Specifically, Republicans are pushing for language that would require the Secretary of State to issue a permit within 60 days to allow the Keystone XL project to move ahead, unless the president publicly determines it is not in the national interest to do so. The pipeline has drawn the ire of environmentalists, and last month, Obama announced he will delay a decision on the pipeline until 2013 to allow further view of the project. Republicans contend that freezing the project halts job creation.

"Here's an opportunity for the president to say he's not going to let a few radical environmentalists stand in the way of a project that will create thousands of jobs and make America more secure at the same time," McConnell said during remarks on the Senate floor.

"There's bipartisan support for this project, and we need to get it done. We need to get it done now," he said.

Senate Majority Leader Harry Reid (D-Nev.) on Thursday floated the idea of a two-month payroll tax cut extension if Senate leaders can't reach a long-term deal. The payroll tax cut would be lumped together in a package with two other must-pass items: an extension of unemployment insurance and a stopgap measure to prevent cuts in Medicare payments to physicians.

"I always have a Plan B," Reid said of a possible short-term deal. "I hope we don't get there, but if we do, what the two-month would accomplish is make sure that people would continue to get the payroll tax holiday and also the unemployment benefits, and also doctors would able to continue their work on Medicare patients."

A House GOP aide said support for a short-term extension is "virtually nonexistent" in the House Republican conference and that they prefer their own payroll tax plan, which already cleared the House but is loaded with policy riders opposed by Democrats and the White House.

In the meantime, with the clock running out on Congress to finish its business before the holidays, the House is plowing ahead on two other key bills: an omnibus spending package that funds the government through the rest of the fiscal year, and a temporary spending bill to keep the government funded for a few extra days to give the Senate time to take up and pass the omnibus package. As it stands, the government is set to run out of funding at midnight on Friday.

Expect a mad dash on Capitol Hill over the next few days: The House is expected to adjourn Friday after passing the two spending bills, leaving the Senate to pass both on Saturday and come up with a deal on the year-end extender package. Once the Senate passes all of those items, the House is expected come back in session next week and, ideally, pass the year-end package and head home for the holidays.

"We still have more work to do on a jobs bill," Boehner said. "If there's a need to do more work, we will do so."

House Democratic leaders declined to weigh in on what the final extender package should look like, saying that responsibility currently lies with Reid and McConnell.

"When we see it, I'll have a comment on it," House Minority Leader Nancy Pelosi (D-Calif.) told reporters Friday. "I would hope it would be finished around now so it could be written up and voted on one way or another."

UPDATE: 3:40 p.m. -- White House Press Secretary Jay Carney later ducked questions about whether Obama would veto a payroll tax deal with Keystone language in it.

"I'm not going to prejudge a final product that does not yet exist," Carney said at his daily briefing. "I'm not going to get ahead of the process. Let's see where it ends."