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Democrats to press advantage in payroll tax cut fight

A view of Capitol Hill in Washington
A view of Capitol Hill in Washington

By Donna Smith

WASHINGTON (Reuters) - Congressional Democrats in upcoming talks to extend a tax cut for workers will to try to extract concessions from Republicans who are anxious to avoid a repeat of last month's battle over the payroll tax that left them in disarray.

Democrats plan to push to renew some tax breaks for businesses and individuals that expired at the end of December, potentially complicating the payroll tax cut negotiations between the Democratic-led Senate and Republican-led House of Representatives.

Extending those tax breaks, which include a research and development credit and education deductions, would tack on an extra $30 billion to the roughly $170 billion cost of extending the payroll tax package through 2012.

The Republican-friendly business community is lobbying hard to get the expired tax breaks included. They have been routinely renewed in the past and Bruce Josten, chief lobbyist for the U.S. Chamber of Commerce, said it would be better for business planning if Congress acted sooner rather than later.

House Republicans say they want to extend the payroll tax break, which Democrats and many economists say is crucial to help the struggling U.S. economy.

But the Republicans are cool to the idea of adding the expired tax breaks to the payroll tax cut package, wary of the extra cost as many Republicans aligned with the conservative Tea Party movement are demanding deep federal spending cuts.

"We've got a big job to resolve this issue without opening up additional ones," House Ways and Means Committee Chairman Dave Camp, chief negotiator for House Republicans on the payroll package, told Reuters.

High tech companies in Democratic strongholds such as California and Washington state would benefit from some of those expired tax breaks. With polls showing public disapproval of Congress higher than ever, renewing the tax breaks would allow incumbent Senate Democrats, such as Washington's Maria Cantwell, to chalk up an accomplishment in potentially tough re-election bids.

SEEKING QUICK AGREEMENT

After a bitter fight in December over extending the payroll tax break, long-term unemployment benefits and a Medicare doctors payments fix, House and Senate leaders could only agree on paying for a two-month extension that expires on February 29.

The upcoming package would avert a pay cut for doctors treating patients under the Medicare government healthcare program for the elderly and extend jobless benefits for the long-term unemployed.

A fresh round of negotiations on the package is set to begin next week when both the House and the Senate will be back in session after month-long breaks. Aides acknowledge a desire by Republicans to wrap up talks quickly and avoid the kind of drawn-out battle over paying for the package that left them fighting more among themselves than with Democrats.

They note general agreement on some budget offsets by both sides, including a plan to raise money by selling public airwave rights. Last month, Senate leaders also were discussing the possibility of ending some tax breaks for the wealthy, according to a Democratic aide.

But Republicans are also pushing government spending cuts that include a plan opposed by Democrats to raise Medicare premiums for upper-income beneficiaries.

Democrats believe Republican disarray gives them the upper hand in the negotiations and they are eying billions of dollars in savings from winding down the wars in Afghanistan and Iraq to offset the cost of an expanded package.

"You could pay for a lot if Republicans are willing to pay for this with war savings," said a Democratic aide.

Democrats would also like to avoid paying this year for the extended unemployment benefits, which they see as emergency spending to help people struggling at a time of high unemployment. But Republicans contend that would only worsen budget deficits.

"Traditionally unemployment insurance extensions have not been paid for," said Representative Sander Levin, one of the House Democratic negotiators on the bill.

It is unclear whether House Speaker John Boehner, the top Republican in Congress, would be able to sell a package to his restive conservatives that is paid for partly with borrowed money or uses war savings as an offset. They see the war savings as the kind of budget gimmick used in the past to mask deficit spending.

"It is not something that would pass the smell test," said one House Republican aide.

Democrats say they are prepared to play hardball if they need to and push again for a tax on millionaires, a plan they used effectively last month to paint Republicans as favoring the wealthy over the struggling middle-class.

This is a theme Democrats hope to use against Republicans in this year's presidential and congressional election campaigns ahead of November's elections, even though they abandoned the millionaires tax proposal during negotiations last month.

"If we get the feeling that they are in there to get a deal done and get it done quickly, it makes it less likely the millionaires tax becomes an issue," said a senior Senate Democratic aide.

(Reporting By Donna Smith; Editing by Vicki Allen)

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