Senate Majority Leader Harry Reid, D-Nev., told reporters that he was still optimistic that bipartisan talks on year-long extensions of the payroll tax cut and unemployment coverage would succeed. But as a "Plan B," he said, they were also working on a two-month extension, which would also prevent cuts in Medicare reimbursements for doctors for that period.
"We're still working on the long-term" bill, Reid told reporters as he exited the Capitol after a day of talks over both the payroll tax and spending measures. As for the two-month version, he said, "We'll only do that if what we're working on doesn't work out."
Reid's remarks put a slight damper on a day on which for the first time, Democratic and Republican leaders expressed optimism at prospects for swift compromise on their payroll tax standoff and a spending battle that had threatened to shutter federal agencies beginning Saturday.
A deal on a $1 trillion spending bill was reached after Republicans agreed to drop language that would have blocked President Barack Obama's liberalized rules on people who visit and send money to relatives in Cuba. But a GOP provision will stay in the bill thwarting an Obama administration rule on energy efficiency standards that critics argued would make it hard for people to purchase inexpensive incandescent light bulbs.
The House is expected to approve the spending measure Friday, and the Senate could follow suit, possibly the same day.
Bargainers were considering the two-month version of the payroll tax cut and unemployment benefits bill because so far, they haven't reached agreement on how a year-long extension would be paid for, said a Democratic aide who spoke on condition of anonymity to discuss the private talks. The two-month bill would cost $40 billion, according to the aide, and would let lawmakers revisit the measure after returning to Washington after the holiday season.
Donald Stewart, spokesman for Senate Minority Leader Mitch McConnell, R-Ky., said talks aimed at agreeing to a year-long bill will continue.
"We're 12 hours into this debate, they just started talking," he said. "I wouldn't hit the panic button."
Still another year-end bill, setting new rules for the handling of terror suspects in U.S. custody, won final congressional approval and headed to President Barack Obama's desk for his signature.
"Right now, Congress needs to make sure that 160 million working Americans don't see their taxes go up on Jan. 1," said Obama, referring to the tax cut extension at the core of the jobs program he outlined in a nationally televised speech three months ago.
House Speaker John Boehner of Ohio, the most powerful Republican in an era of divided government, agreed. "We can extend payroll tax relief for American workers, help create new jobs and keep the government running. And frankly, we can do it in a bipartisan way," he said.
The long-moribund job market, too, appeared to be on the mend. Government figures showed 366,000 applications for unemployment benefits were filed last week, the lowest number since the near-collapse of the financial system in 2008 and the brutal recession that followed.
In the Capitol, the previous day's bristling rhetoric and partisan jabs all but vanished.
Republicans agreed to consider changes to a $1 trillion spending bill compromise that they and at least one Democrat said had been wrapped up days ago. The White House said it wanted adjustments.
There were separate negotiations on legislation to extend the Social Security payroll tax cut and unemployment benefits. Democrats abandoned their demand for a surtax on million-dollar incomes that they wanted to include in the measure, removing a provision that Republicans strongly opposed.
"We hope that we can come up with something that would get us out of here at a reasonable time in the next few days," said Senate Majority Leader Harry Reid of Nevada.
At a news conference, Boehner minimized the concession, noting that Democrats lacked the votes to impose the surtax a year ago when they commanded 60 votes in the Senate. Even so, he said, "there was some movement yesterday from the White House and Democrat leaders" toward a compromise.
Boehner also left open the possibility of a compromise on another key sticking point - a House-passed provision that all but requires construction of the proposed Keystone XL oil pipeline from Canada to Texas.
Construction "will put 20,000 people to work immediately And there are about 115,000 other jobs directly related to it," he said. Yet he skipped an opportunity to say construction of the project was a non-negotiable condition as talks on the payroll tax cut bill proceed.
Obama has threatened to veto the House-passed bill, in part citing the requirement for the pipeline. The project has been studied for more than three years, but the president recently announced he would put off a decision until after the 2012 elections.
Without an extension of the payroll tax cut, 160 million Americans will have smaller take home pay beginning on Jan. 1, a fact that the president and leaders of both parties stressed as they looked for compromise.
Obama asked Congress to extend and also to expand the payroll tax cut that took effect last Jan. 1 and is due to expire at the end of the year. The House-passed bill renews the current reduction for one year, and it was unclear whether a final compromise would go any further.
The president also wants to leave in place a system that provides aid for up to 99 weeks for the long-term unemployed. The House-passed measure reduces the total by 20 weeks, a step that the administration says would cut off 3.3 million individuals and that Democrats are hoping to soften if not reverse.
Also part of the negotiations was an attempt to head off a threatened 27 percent cut in payments to doctors who treat Medicare patients, an item added in the House to appeal to conservatives unhappy at extending the payroll tax cuts.
Reid indicated that a number of expiring tax breaks were on the table, as well, a list that included a provision that benefits commuters who use mass transit.
In a bow to deficit-conscious conservatives in the House, Obama and leaders in both parties have agreed to offset the cost of the measure to avoid raising deficits.
The White House and Democrats wanted to use the surtax on million-dollar income to finance most of the bill. But with that off the table, they were required to look elsewhere in talks with Republicans.
The House-passed measure relied on a pay freeze and increased pension contributions for federal workers, as well as higher Medicare premiums for seniors with incomes over $80,000, beginning in 2017. The bill would also would raise a fee that is charged to banks whose mortgages are guaranteed by Fannie Mae and Freddie Mac, and cancel more than $40 billion from the year-old health care bill that is Obama's signature domestic achievement.
At about $1 trillion, the year-end spending measure would lock in cuts that Republicans extracted from Democrats in negotiations conducted months ago against the deadline of a previous government shutdown threat.
This time, the two sides reached an agreement days ago, according to Republicans and at least one Democrat, well ahead of the Friday midnight deadline. Somewhat belatedly, the White House and Reid insisted otherwise, and Republicans accused them of reneging on the deal to gain leverage in negotiations on the payroll tax bill.
In response to the Democrats, House Republicans threatened on Wednesday to repackage the measure and pass it. The leadership held the threat in abeyance while compromise negotiations took place.
The separate defense bill covered military personnel, weapons systems, the wars in Afghanistan and Iraq and more at a cost of $662 billion, $27 billion below Obama's request. The Senate approved it by a resounding 86-13.
The main controversy revolved around a provision to require military custody for foreign terrorist suspects linked to al-Qaida or its affiliates and involved in plotting or attacking the United States. Under a change made to gain Obama's backing, the legislation would permit the FBI to arrest and interrogate foreign terror suspects, as is now the case. ---
Associated Press writers Donna Cassata and Andrew Taylor contributed to this story.