Senate Finance Committee Chairman Max Baucus said lawmakers mayhave to agree to an extension of a payroll tax cut for workers thatfalls short of a full year if they can't reach a deal on coveringthe measure's cost.

“If we cannot agree on the pay-for, we might have to look toother options for the payroll tax,” such as not extending the taxcut “for the full time,” Baucus said today at a conferencecommittee meeting in Washington.

House and Senate negotiators are seeking to extend the two-percentage point reduction in the payroll tax for workers through2012, which would cost the Treasury about $100 billion. Lawmakersin December passed a two-month extension of the tax cut, whichexpires Feb. 29, because they couldn't agree on how to finance alonger continuation.

At the second public meeting of the conference committeeappointed to seek agreement on a yearlong extension, lawmakersremained far apart on how and whether to cover the full cost of themeasure. Panel chairman Representative Dave Camp, a MichiganRepublican, said after the meeting that Baucus's comments sounded a“cautionary note.”

“We may not be able to do all we want to do if we can't findagreement on pay-fors,” Camp told reporters. “It was an importantcautionary note. I certainly agree with it.”

Baucus would only consider shaving off a short amount of time iflawmakers can't agree on a plan to carry the tax cut through theend of 2012, said his spokesman, Scott Mulhauser.

“Chairman Baucus believes we simply must find a viable way topay for the remainder of the year,” Mulhauser said in an e-mailedstatement. “Only if that becomes untenable would he even considercarving back a month or so.”

During today's meeting, Camp pressed colleagues to discuss laterhow to pay for the extension.

“The faster we can move through the policies, the more quicklywe can move to the question of pay-fors,” Camp said.

Democratic lawmakers criticized that request. RepresentativeSander Levin of Michigan, the top Democrat on the Ways and MeansCommittee, said policy discussions can't be split from the debateover financing the extension.

“Separating policy from the pay-fors is problematic because thepay-fors involve policy,” he said.

Representative Chris Van Hollen, a Maryland Democrat, saidRepublicans were wrong to insist on covering the cost of thepayroll tax cut when they didn't require paying for extensions ofthe 2001 and 2003 income tax cuts, which included breaks for highearners.

'Fiscally Responsible'

“As we pursue this conversation, we should consider what hasbeen a different standard set by certain members of Congress withrespect to what we pay for and what we don't pay for,” Van Hollensaid.

Senator Mike Crapo, an Idaho Republican, said the panel must act“in a way that's fiscally responsible.”

“We need to be paying very close attention to our nationaldebt,” he said.

In addition to expiration of the payroll tax cut, a failure toreach agreement would reduce unemployment benefits from a maximumof 99 weeks to 26 weeks and decrease doctors' Medicarereimbursements.

Lawmakers spent two about two and a half hours today debatingunemployment benefits, Medicare reimbursements and whether thepayroll tax break should be extended through 2012.

Baucus said Senate Democrats plan to offer House Republicans aproposal on the unemployment compensation system at a meetingtomorrow.

Lawmakers said they have been able to agree on a few matters,such as the need for the payroll tax cut to be extended beyond Feb.29 and for continuing some level of expanded unemploymentbenefits.

An agreement would require support from a majority of eachchamber among the 20 lawmakers on the committee to be sent to thefull House and Senate for a vote.

Bloomberg News

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