The U.S. House of Representatives passed legislation that wouldextend an employee payroll tax cut for one year while freezing payfor federal workers, restructuring unemployment compensation andspeeding approval of a Canadian pipeline that would stretch toTexas.

Today's 234-193 vote sends the $202.4 billion measure to theU.S. Senate, where Majority Leader Harry Reid, a Nevada Democrat,has said it won't advance. The Senate may vote on blocking theHouse measure this week before negotiations begin on legislationthat would have a better chance of clearing both chambers ofCongress and being signed by President Barack Obama.

The payroll tax cut has been caught up in partisan politics,with Obama portraying Republicans as willing to allow amiddle-class tax increase while Republicans raised concerns aboutcovering the cost of the tax cut. If Congress doesn't act by Dec.31, employees will begin paying a 6.2 percent tax on the first$110,100 in wages in January, up from 4.2 percent this year. Thepayroll tax funds Social Security.

The bill “will help families struggling in this economy,” saidHouse Ways and Means Committee Chairman Dave Camp, a MichiganRepublican who sponsored the legislation. “The Senate shouldquickly pass it.”

Beyond extending the payroll tax at the 4.2 percent rate, theRepublican bill includes revamping the unemployment compensationsystem. It would reduce maximum benefits from 99 weeks to 59 weekswhile requiring recipients of unemployment benefits to be activelylooking for work or trying to get a high-school diploma. Statesalso could require drug tests as a condition of receivingbenefits.

Senator Richard Durbin of Illinois, the chamber's No. 2Democrat, said yesterday he was “troubled” by the reduction inunemployment compensation and called the drug-testing provision“nothing short of outrageous.”

“The Republican suggestion that they must all bedrug-addled crazy addicts who are not really seriously looking fora job is an insult to a lot of wonderful people who are doingeverything in their power to get back to work,” he said in aninterview.

One of the most contentious provisions of the Republican payrollpackage is a provision that would expedite approval of TransCanadaCorp.'s Keystone XL pipeline. The pipeline would link Canada's oilsands with Texas refineries.

The bill would require a decision on the issue within 60 days.The Obama administration has pushed back the issuance of a permitto 2013, a move Republicans criticize as designed to delay actionuntil after the 2012 elections.

Pipeline Issue

Obama said Dec. 7 that he would reject linking the pipeline toan extension of the payroll tax cut. White House press secretaryJay Carney said yesterday that including the Keystone issue in thepayroll tax cut bill sends the message that “there's a politicaltradeoff to be had that extending tax cuts for middle-class andworking Americans should only occur in return for a political gift,or an ideological item.”

“We simply disagree,” Carney said.

Boehner said yesterday he wouldn't rule out negotiating acompromise with Democrats if they reject the Keystone provision.Still, he dismissed criticism that the House bill imposes anarbitrary deadline for the administration to act on thepipeline.

“The only thing arbitrary about this decision is the decision bythe president to say 'well, let's wait until after the election,'”Boehner said.

The bill also finds significant savings from provisionsaffecting the federal workforce. Republicans said the bill wouldsave $26 billion by extending through 2013 a pay freeze for federalworkers and $36 billion by revising the co-payment structure forcivilian federal retirees.

More savings would come from health-care changes. People whoreceive subsidized insurance under the 2010 health-care law andthen see their incomes rise would be required to repay thegovernment more money than under current law. High-income Medicarerecipients would be required to pay higher premiums.

The bill would require taxpayers to have a Social Securitynumber to claim a portion of the refundable child tax credit,saving $9.4 billion. Republicans, citing reports from governmentauditors, say the current rules allow illegal immigrants to claimthe credit.

Republicans also want to extend the federal welfare program andprevent benefits from being accessed at automated teller machinesin strip clubs, liquor stores and casinos.

The legislation would require the Environmental ProtectionAgency to delay new pollution standards for industrial boilers,extending a deadline for five years for companies to comply.

The agency has said the rules would cut pollution of mercury andsoot. The regulations are set to be in place in March, with thefirst restrictions taking effect two years later.

The rule, which may require upgrades of pollution controls atpaper mills, chemical manufacturers and refineries, will cost $1.5billion a year, according to an EPA analysis. The House passed asimilar measure in October to delay the boiler standard, a billthat the administration threatened to veto.

The bill is H.R. 3630.

Bloomberg News

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