Senate Finance Committee Chairman Max Baucus said lawmakers may have to agree to an extension of a payroll tax cut for workers that falls short of a full year if they can't reach a deal on covering the measure's cost.

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

House and Senate negotiators are seeking to extend the two- percentage point reduction in the payroll tax for workers through 2012, which would cost the Treasury about $100 billion. Lawmakers in December passed a two-month extension of the tax cut, which expires Feb. 29, because they couldn't agree on how to finance a longer continuation.

At the second public meeting of the conference committee appointed to seek agreement on a yearlong extension, lawmakers remained far apart on how and whether to cover the full cost of the measure. Panel chairman Representative Dave Camp, a Michigan Republican, 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 find agreement on pay-fors,” Camp told reporters. “It was an important cautionary note. I certainly agree with it.”

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

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

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

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

Democratic lawmakers criticized that request. Representative Sander Levin of Michigan, the top Democrat on the Ways and Means Committee, said policy discussions can't be split from the debate over financing the extension.

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

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

'Fiscally Responsible'

“As we pursue this conversation, we should consider what has been a different standard set by certain members of Congress with respect to what we pay for and what we don't pay for,” Van Hollen said.

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 national debt,” he said.

In addition to expiration of the payroll tax cut, a failure to reach agreement would reduce unemployment benefits from a maximum of 99 weeks to 26 weeks and decrease doctors' Medicare reimbursements.

Lawmakers spent two about two and a half hours today debating unemployment benefits, Medicare reimbursements and whether the payroll tax break should be extended through 2012.

Baucus said Senate Democrats plan to offer House Republicans a proposal on the unemployment compensation system at a meeting tomorrow.

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 unemployment benefits.

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

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