New wild card in Congress's fight over payroll tax: an oil pipeline

House Republicans offer their plan for extending the payroll tax cut for US workers. A sweetener to get conservatives on board: the Keystone XL oil pipeline, which Obama wants to delay.

President Obama last month moved the proposed Keystone XL oil pipeline to the bottom of his agenda. This week House Republicans took action to move it back to the top. 

The pipeline project, which would connect the tar sands of Canada to oil refineries in Texas, has stirred controversy in some host states, mainly over environmental concerns. Mr. Obama was to decide this month whether to approve it, but the timetable was pushed back a year – after the 2012 election, some note – to study a possible new pipeline route.

Now Republicans on Capitol Hill are trying to make the pipeline a card to play in their negotiations with Mr. Obama and Democrats over tax policy.

For weeks, Congress has been gridlocked over what to do about expiring tax cuts. Lawmakers have proposed and counterproposed bills that will retain workers' payroll tax "holiday" for another year, as well as extend unemployment benefits. But the two parties remain far apart on how to do that without adding billions of dollars to the federal deficit.

Democrats appeared to be winning the public-relations war, though Republican leaders have insisted they do not want to let the tax holiday – worth about $1,000 to the average family – expire on Dec. 31. If Congress doesn’t act, the employee payroll tax jumps back to 6.2 percent, up from a 4.2 percent this year.

But Republican leaders are stymied, because of strong disagreement within GOP ranks on how to proceed on this issue. Many rank-and-file conservatives see the current payroll tax cut as not actually a cut, because it requires the US Treasury to make up what taxpayers do not pay in to the main funding stream for Social Security, adding to federal deficits. Fractious GOP caucus meetings had failed to find common ground.

But Thursday’s move to include approval of the $7 billion Keystone XL pipeline drew cheers from GOP lawmakers and is rallying conservative support, if only because the pipeline puts Republicans on the side of fighting for jobs, not just protecting millionaires from tax hikes.

For weeks, Obama and Democratic leaders have hammered Republicans for refusing to allow a surtax on millionaires and billionaires to pay for these popular measures. It was a matter of simple fairness, they said.  

Polls showed that voters shared that view, likely to be Exhibit A in Democrats' 2012 campaign to hold the Senate and take back the House. And GOP leaders took note. In a switch, Senate minority leader Mitch McConnell (R) of Kentucky last week told his caucus that extending payroll tax cuts was crucial to GOP prospects in 2012. 

Many rank-and-file Republicans still don’t buy it. But the prospect of a fight with the White House over the oil pipeline is giving House Republicans a new rallying point. Cheers erupted during a private meeting of the House GOP caucus Thursday morning as Speaker John Boehner, adding the pipeline to the GOP plan, called on Republicans to “take the fight” to the president.

“The Keystone pipeline project will create tens of thousands of jobs immediately,” said Mr. Boehner afterward.

“It's pretty clear that the president has decided to push this decision off for a year, conveniently until after his next election,” he added. “Well, the American people can't wait, as the president said.”

In a briefing on Thursday, Obama characterized the speaker’s move as just “wanting to dicker,” to see “what they can extract from us in order to get this done.”

“However many jobs might be generated by a Keystone pipeline, they’re going to be a lot fewer than the jobs that are created by extending the payroll tax cut and extending unemployment insurance,” Obama added.

The House GOP bill, released Friday, also includes a measure to block a 27 percent cut in payments to doctors who serve Medicare patients, set to begin on Jan. 1. Republicans propose a two-year "doc fix." And it would block new federal regulations to limit toxic emissions from industrial boilers – another measure aimed to win support from conservatives and Democrats from coal states.

The plan continues a GOP assault on the president's signature health-care reform, defunding an $8 billion prevention and public health fund. It also extends tax breaks for business investment and $16.5 billion in block grants to the states to help needy families, including new limits to prevent accessing welfare funds in strip clubs, liquor stores, or casinos.

The House bill is expected on the floor for votes next week.

The Senate, meanwhile, is stuck in neutral. On Thursday the Democratic plan and the Republican plan each fell short of the 60 votes needed to advance a payroll tax bill to the floor.