Boehner rejects tax cut deal

Reporting from Washington —  House Speaker John A. Boehner escalated a year-end showdown over President Obama’s payroll tax cut by rejecting a Senate-passed compromise — jeopardizing the $1,000 average annual benefit for 160 million working Americans and risking the blame if taxes rise.

The Republican-controlled House was expected to vote down the Senate’s two-month extension of the tax break Monday in a largely symbolic demonstration that the stopgap deal is unacceptable. The tax break expires Dec. 31.

“How can you do tax policy for two months?” Boehner (R-Ohio) said Sunday on NBC’s “Meet the Press.” “We should do this for the full year as the president asked for.”

The speaker’s dismissal of the deal reached by the Senate’s Republican and Democratic leaders presents another example of his willingness to cater to the GOP’s conservatives and tests his grip on the often-unwieldy Republican House majority.

House members are being called back to Washington as Republicans try to kick-start negotiations with Democrats by either amending the bill or launching formal talks on compromise. But they could end up shadowboxing. The Senate has left town and Majority Leader Harry Reid of Nevada said he would refuse to engage in further talks until the House approved the short-term extension that passed the Senate on Saturday by a bipartisan margin, 89 to 10.

“Neither side got everything they wanted, but we forged a middle ground,” Reid said in a statement Sunday. “If Speaker Boehner refuses to vote on the bipartisan compromise that passed the Senate with 89 votes, Republicans will be forcing a $1,000 tax increase on middle-class families on Jan. 1.”

Democrats think they have the political advantage in highlighting the GOP’s obstruction of the tax package, which also extends long-term unemployment benefits and ensures that doctors who treat Medicare patients do not see their pay cut by more than 20% in 2012. Their House campaign arm will begin targeting politically vulnerable GOP lawmakers Monday. Returning to the issue in two months would give Democrats another chance to reinforce that message.

With time dwindling, the White House is concerned that a lapse in the tax break would impair the struggling economy. The bill would keep workers’ Social Security contribution at 4.2%, as it has been for 2011, instead of 6.2%. Mainstream economists say the 2-percentage-point reduction puts money in the pockets of people likely to spend it, and without it the nation’s growth next year would be reduced.

GOP lawmakers doubt the tax cut is helping the economy and are skeptical of pledges that the Social Security fund will be replenished.

At one point, Democrats had stalled passage of an unrelated funding bill needed to avert a government shutdown to use as leverage in the tax negotiations, but the White House no longer appears to be pursuing that strategy.

Restarting talks could lead to days of closed-door negotiations. With the president remaining in Washington while his family is in Hawaii for the holidays, the administration called on the House to approve at least the two-month measure — punting the contentious debate into next year.

“If House Republicans refuse to pass this bipartisan bill to extend the payroll tax cut, there will be a significant tax increase on 160 million hardworking Americans in 13 days that would damage the economy and job growth,” said Dan Pfeiffer, White House communications director. “It’s time House Republicans stop playing politics and get the job done for the American people.”

Republicans have never fully embraced the tax break for workers, despite passing their own yearlong extension in the House and party leaders’ insistence that they do not want to raise taxes. The short extension was even more distasteful for rank-and-file House Republicans. Democrats’ agreement to include a provision that would accelerate a decision on the controversial Keystone XL oil pipeline, which Obama had postponed for more study, was not enough to win support from House Republicans.

“We owe the middle class, employers and doctors better than a two-month extension,” said an aide to Rep. Eric Cantor (R-Va.), the majority leader.

Boehner had sought to avoid this fight after a year of bruising political standoffs. He had been careful to remain outside of Senate talks and signaled his displeasure with the two-month compromise, though Senate Republican leader Mitch McConnell of Kentucky said he was in touch with Boehner throughout the negotiations.

Shortly after Senate passage, Boehner convened his rank and file on a weekend conference call and listed pros and cons of the package, according to those granted anonymity to discuss the conversation.

On the up side, he noted the Keystone pipeline provision, which he called “a victory,” even though the administration had downplayed the measure. He also noted the ease with which the deal could conclude Congress’ work for the year.

But the package did not go over well, even with other leaders. Cantor spoke out against the deal, sources said, as did House Whip Kevin McCarthy of Bakersfield.

“There was an overwhelming amount of angst,” said Rep. Jeffrey Landry, a Republican freshman from Louisiana. “The message was, whatever we do we certainly don’t want to take what we got, what they sent us.”

Negotiating a yearlong extension of the tax break, however, has proved difficult. Unlike past efforts to extend other tax breaks, the GOP insists the $200-billion cost of this package must be paid for by offsets elsewhere in the budget — a position Obama and Democrats have adopted.

Obama’s proposal to impose a surtax on income over $1 million to cover the costs was summarily rejected by Republicans, whose House-passed package relied on revenue from reducing jobless aid, Medicare and other domestic priorities that Democrats refuse to tap. The Senate compromise found consensus by raising fees on government-backed home loans.

The House GOP revolt showed the difficulty Boehner faces in nudging his ranks toward compromise and the pressure from other party leaders to go along with the conservative majority. In addition to complaints about the short-term nature of the deal, House Republicans skewered the unemployment insurance provisions, which dropped their proposed reductions in long-term jobless benefits as well as a provision to allow recipients to be required to pass drug tests.

“It is a make-or-break moment for John Boehner’s speakership,” said Sen. Charles E. Schumer of New York, the No. 3 Democrat in the Senate. “This compromise was good enough for Mitch McConnell and Marco Rubio. It was good enough for Jon Kyl and Tom Coburn,” referring to the Senate’s more conservative Republicans. “It should be good enough for Speaker Boehner.”

By seeking to restart talks, Boehner is attempting to steer Congress back to its traditional process of negotiating a compromise from House and Senate bills. “That seems to legitimize it to people,” said a GOP leadership aide not authorized to speak on the record about internal strategy.

If such a deal can be achieved, it may be easier for Republican lawmakers to accept.

A McConnell spokesman said Sunday that Boehner’s call for continued negotiations between the House and Senate was the best approach.

“The House and the president both want a full-year extension,” McConnell spokesman Don Stewart said. “The best way to resolve the difference between the two-month extension and the full-year bill, and provide certainty for job creators, employees and the long-term unemployed, is through regular order, as the speaker suggested.”

lisa.mascaro@latimes.com

kathleen.hennessey@latimes.com