U.S. Speaker Boehner surrenders in tax showdown

WASHINGTON Fri Dec 23, 2011 2:34am GMT

U.S. House Speaker John Boehner (R-OH) speaks during a news conference at the U.S. Capitol in Washington, December 22, 2011. REUTERS/Jonathan Ernst

U.S. House Speaker John Boehner (R-OH) speaks during a news conference at the U.S. Capitol in Washington, December 22, 2011.

Credit: Reuters/Jonathan Ernst

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WASHINGTON (Reuters) - U.S. House of Representatives Speaker John Boehner caved in to growing criticism from within and outside his Republican Party, agreeing on Thursday to a short-term deal to extend a payroll tax cut for 160 million Americans.

In a dramatic reversal that appeared to end a standoff with Democrats, Boehner told Senate Majority Leader Harry Reid he would set a vote in the House on a Senate-passed two-month extension of the tax cut and jobless benefits - key supports for a fitful U.S. economic recovery.

The Republicans' about-face contrasts with a year of dominance in Congress in which their staunch opposition to higher taxes and spending yielded a string of successes.

Their backpedalling this time handed a rare victory to President Barack Obama and his fellow Democrats as well as much-needed momentum going into the November 2012 election.

In the battle of optics, Boehner and the party that fights for lower taxes found themselves being blamed for not helping avert a tax hike for middle-class Americans come December 31.

"We have fought the good fight. Why not do the right thing for the American people even though it's not exactly what we want," a deflated Boehner told a news conference after giving up his push for a one-year deal that faced near impossible odds.

VOTES ON FRIDAY

The House could hold a simple "voice vote" on Friday that requires only a few members to be present and frees Republicans from having to cast politically difficult recorded votes. The Senate would also vote on Friday.

That procedure allows Boehner to push through the bill despite opposition from his often fractious caucus in which Tea Party fiscal conservatives wield outsized influence.

Boehner told members about Thursday's deal in a muted conference call in which they could ask no questions. In a similar call last weekend, he faced an outcry from members who opposed a short-term deal, forcing him to reject the Senate bill and precipitating this week's crisis.

Obama, who repeatedly used the bully pulpit of his office this week to push Boehner to do a deal, said in a statement he hoped Congress would keep working to "extend this tax cut and unemployment insurance for all of 2012 without drama or delay."

Under a deal agreed to by Boehner and Reid, both parties will immediately appoint negotiators to forge the full-year deal sought originally by Obama and most recently by House Republicans who said a two-month fix created uncertainty.

The capitulation followed days of pressure on Boehner, from fellow Republicans in the Senate and conservative circles and from the White House and Democrats, who analysts said were winning the messaging war.

But maybe most crucial for breaking the impasse on Thursday was the intervention of Senate Republican leader Mitch McConnell, who called on the House to pass a temporary extension and then move to congressional negotiations on a payroll tax cut that would extend through 2012.

The two sides are deadlocked over how to pay for a full-year deal on extending the payroll tax cut, long-term unemployment benefits and payments to doctors treating patients under the Medicare healthcare system for the elderly.

To cover a portion of the nearly $200 billion (127.4 billion pounds) price tag, Democrats initially sought a surtax on the wealthiest Americans while Republicans wanted to pay for it through spending cuts.

New talks in early 2012 are likely to produce another round of the divisive fights that have dominated the 112th Congress and helped send its approval ratings to historic lows.

'RISKED LOSING SENATE'

Republican leaders feared a fierce backlash from voters in the 2012 elections and many Republican lawmakers were already getting an earful from constituents back home. Had the deal failed to materialize, they were looking at a $1,000-a-year tax increase on the average worker starting on January 1.

"If they had continued to dig in on this they risked losing the Senate in 2012 and handing President Obama the election without even having a fight," said Ford O'Connell, a Republican strategist.

That said, Republicans will be back at the negotiating table in the midst of their party's primary elections for the 2012 campaign and another messy fiscal fight could complicate matters for candidates.

For months many Republicans were cool to extending the payroll tax cut at all, saying it was not an effective economic stimulant.

But in recent weeks they have reluctantly embraced it as Democrats relentlessly hammered away at the issue and economists warned failure to extend it by December 31 could deal a major blow to a fragile economic recovery.

"Just the fact that it's a 10th hour agreement, not an 11th hour agreement, that's good but it's not quite great," said Gennadiy Goldberg, interest rate strategist at 4Cast Inc in New York.

Obama made extending the payroll tax cut the highest priority of his year-end agenda and the win could help his bid for re-election in November 2012. The economy's woes are seen as the biggest hurdle to Obama's prospects and any improvement in growth would help him politically.

As the standoff played out in recent days, several polls have shown a rise in Obama's approval ratings to nearly 50 percent after his popularity over the past few months had been mired in the low 40 percent range.

But there was one part of the legislation that did not go as Obama planned - one included to win over Republicans - that would force the State Department to speed up a decision on the stalled Canada-to-Texas Keystone XL oil pipeline.

The Obama administration recently said it will delay its decision on the project until after the 2012 election while it studies alternative routes that would spare environmentally sensitive areas. Critics accuse Obama of pandering to his environmental voter base.

The State Department told lawmakers that if it were forced to make a decision early in the year, it would have to reject the permit.

(Writing by Ross Colvin and Mary Milliken; Additional reporting by Thomas Ferraro, Donna Smith, Kim Dixon, Caren Bohan, Rachelle Younglai and Emily Flitter; Editing by John O'Callaghan)

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