Congressional negotiators are refusing to budge from positionsthat could stall talks to extend a payroll tax cut through2012.

A House-Senate conference committee aimed at breaking thedeadlock may meet as soon as Jan. 24.

Democrats want to impose a tax on income exceeding $1 millionand are warning Republicans against seeking to attach policyproposals that aren't linked to the tax cut, such as looseningrules on industrial emissions. Republicans oppose the tax on highearners to pay for the extension, while insisting that the full$100 billion package must be offset.

After a month away from Washington, lawmakers haven't moved farfrom where they were in December, when Congress agreed to alast-minute extension of the expiring tax cut through February. Thelack of movement indicates that the conferees will have toughdecisions to make before the short-term extension expires Feb.29.

“I can't imagine until we have those discussions in a thoughtfulgive-and-take that that's going to happen soon,” saidRepresentative Kevin Brady, a Texas Republican on the conferencecommittee. “There are a lot of key issues; a lot of them aren'teasily solved.”

Unless Congress acts, the 2 percentage point tax cut foremployees will lapse. Workers who earn $50,000 a year and are paidbiweekly will see each paycheck decrease by $38.46 starting inMarch without an extension. The payroll tax funds SocialSecurity.

Without action, emergency unemployment benefits also wouldexpire and physicians who are reimbursed through Medicare wouldreceive lower payments from the government.

The surtax on high earners — which is one of the most divisiveelements of the payroll debate — should be considered, HouseDemocratic leader Nancy Pelosi of California told reportersyesterday.

“If the Republicans insist on paying for payroll tax cuts forthe middle class, as they have not insisted on for tax cuts for thewealthy, then we would have a way to do that,” Pelosi said. “Thesurcharge is the simplest, easiest way to pay for it.”

Pelosi said while she hadn't advised appointees to the panelthat anything was off the table in the negotiations, “they knowwhat our values are.”

One of Pelosi's appointees, Democratic Representative Chris VanHollen of Maryland, said Democrats would oppose policy provisionsthat House Republicans included in a bill last year to bolstersupport within their ranks. Some Republicans oppose the payroll taxcut, saying it damages Social Security.

'Don't Belong'

“We shouldn't have any extraneous issues in the conference,” VanHollen said in an interview. “Those kind of things don't belong ona bill to reduce payroll taxes for 160 million Americans. We shouldfocus on that and not allow the process to be bogged down.”

Republicans aren't backing away from another fight over policyissues that could be attached to an extension. Representative FredUpton, a Michigan Republican who is a conferee, said there was “noexcuse” for Democrats to oppose a provision limiting theEnvironmental Protection Agency's authority to regulate industrialboilers.

Upton said Republicans also will push for inclusion in themeasure of a pay freeze, at least through 2013, for non-militaryfederal employees. That proposal, included in the House-passedbill, drew criticism from Democrats. They may be less inclined tobudge now as President Barack Obama plans to propose a 0.5 percentincrease in federal workers' pay in his fiscal 2013 budget.

House Republican conferees are seeking an agreement that wouldlet the panel hold its first meeting on the afternoon of Jan. 24,hours before Obama will come to Capitol Hill to deliver his Stateof the Union address, Upton said.

Several House Republican negotiators said yesterday that theyhaven't met directly with conferees on the Senate side or withDemocratic negotiators.

“Our discussions have been, as you can imagine, preliminary,setting out broad parameters, procedural considerations,” saidRepresentative Nan Hayworth, a New York Republican on the panel.“Specifics of offsets really have not been our topic.”

Hayworth said the House-passed payroll bill should be “the basisfor negotiation.”

House Speaker John Boehner, who agreed to the two-monthextension only after public pressure increased, also is standing bythe approach the House took late last year.

“We were picking the right fight, but I would argue that weprobably picked it at the wrong time,” the Ohio Republican toldreporters yesterday.

Bloomberg News

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