Deeply divided US lawmakers on Friday eked out an agreement to extend payroll tax cuts for just two months, and only after Democrats bowed to Republican demands on a controversial oil pipeline.
The deal, which still needs approval of the full US Senate and US House of Representatives, fell far short of US President Barack Obama’s push for a one-year extension of the tax relief and long-term unemployed benefits to boost the country’s fragile economic recovery.
The surprisingly modest accord will likely do nothing to dispel concerns of US voters and investors of deep dysfunction in the US capital. It also creates more uncertainty about Washington’s ability to steer the nation through global economic turbulence.
Partisan rancor has derailed efforts to forge a deficit reduction plan, brought the government to the brink of a shutdown three times this year and led to a downgrade of by Standard & Poor’s of the US’ coveted “AAA” credit rating in August.
Democrats did not come close to getting the legislation they initially sought, but they put a brave face on the deal they agreed to, saying it gives them another opportunity early next year to fight for a payroll tax cut for wage earners and tax hikes on the wealthy to pay for it — two arguments that play well with Democratic voters.
It was not clear how Friday’s deal would affect Obama, but he has faced persistent criticism from his base of liberal-leaning voters, who say he has caved in to Republican demands on policy issues ranging from tax hikes and spending cuts to environmental protections.
“At one minute to midnight and the end of the year, the Democrats appear to have conceded two significant issues on the payroll tax cut and they got a measly two months extension in return,” said David Gergen, an adviser to two former Democratic and two Republican presidents.
To try to break a stalemate in the payroll tax cut negotiations, Obama’s fellow Democrats first dropped their proposal to pay for it with a surtax on millionaires. Then on Friday, they abandoned what had appeared to be a non-negotiable demand — for the Keystone XL oil pipeline from Canada to Texas to be kept separate from the payroll tax cut issue.
The measure would require Obama to make a decision on allowing construction of Keystone within 60 days or declare that “oil trade with Canada is not in the national interest of the United States,” according to an aide to Republican US Senator Richard Lugar.
Obama recently put off a decision on the pipeline until 2013 while the government studies alternative routes. Many interpreted that move as a way to appease his environmental base in his bid to win re-election.
The deal immediately drew fire from environmentalists, who said it was an example of Republicans holding the federal government hostage on behalf of the oil industry.
“We’re disappointed that the president seemingly signed off on this deal, but we expect that he’s going to live up to his promise ... that he will turn down the permit for the pipeline,” said Daniel Kessler, spokesman for Tar Sands Action, a group that opposes the project.
Kessler said he expected members from his group to reprise their protests about the project at Obama’s campaign offices across the country.
In a defense of what appeared to be a major concession to Republicans, an Obama administration official said the deal would effectively mean the Keystone project would not go ahead.