WASHINGTON (Reuters) ? After another fiscal fight next month, U.S. lawmakers are likely to agree to extend payroll tax cuts and emergency unemployment assistance, senior congressional aides said on Tuesday.
Stunts designed to score political points may intercede, but in the end, the direct hit to Americans' wallets and risks to the economy posed by lapses in either program make an agreement probable, aides said.
Republicans will push hard to get both extensions fully paid for and make them deficit-neutral. If that can be assured, a deal will happen, they said.
"Republicans understand the pressure of getting something done ... We'll be pushing to have it paid for," said a senior Republican aide who asked not to be named.
The debate over government spending and taxes has shifted since Monday's failure of Congress' "super committee" to find $1.2 trillion in federal budget savings over 10 years.
After lawmakers return from the Thanksgiving holiday, Democrats are expected to seek extension and expansion of cuts to U.S. payroll taxes, paid by employees and employers, that fund the Social Security retirement pension system.
The payroll tax cuts were put in place almost a year ago as economic stimulus at President Barack Obama's request. Now he wants to extend and possibly expand them.
With jobless rates high, the president and Democrats also want to extend emergency unemployment insurance. Together, these two initiatives would cost about $200 billion.
Senate Democrats may seek a vote in early December on a proposal to pay for both programs with a tax on millionaires, aides said.
While the proposal is likely to fail, it could give Democrats a chance to blast Republicans opposing it as friends of the wealthy, aides said.
In the House of Representatives, Republicans may attempt to hold a vote on paying for the extensions with a measure attacking President Barack Obama's healthcare programs. It could pass the House, but would likely die in the Senate.
BAUCUS: TOO IMPORTANT
Once the point-scoring rituals are over, lawmakers are likely to get down to business and find a way to extend the payroll tax cuts and unemployment insurance, aides said.
Senate Finance Committee Chairman Max Baucus, a Democrat, said extension of both measures, plus blocking a steep pay cut for doctors in the national Medicare health program, "will all get done -- they are each too important not to do so."
Obama was campaigning in New Hampshire on Tuesday and challenged Congress to save the expiring payroll tax cut.
It "could be the driver for some legislation before year-end," said Hank Gutman, director of federal tax legislative and regulatory services at KPMG.
An overall budget bill will be needed by mid-December, when an earlier temporary spending measure expires, and could be the vehicle for dealing with these issues, aides said.
"If Congress doesn't want to extend some of these benefits, then it's going to ensure that the economy faces more hurdles," said Joel Naroff chief economist at Naroff Economic Advisors in Holland, Pennsylvania.
"Add that to the uncertainty in Europe and you have a very disturbing outlook for the first half of next year."
JPMorgan Chase economists estimated losing unemployment benefits and the payroll tax cuts would shave 0.75 percentage point from growth in gross domestic product next year.
EXTENDERS WILL WAIT
Time constraints will delay until 2013 congressional action on other tax and spending issues, aides and analysts said.
These include extending dozens of tax breaks, such as one for business research and development, and once again "patching" the alternative minimum tax so it does not hurt middle-class taxpayers it was never meant to reach.
"Lame duck, end of next year" is the best-bet advice being given to clients on tax break extensions by Clint Stretch, principal at Deloitte Tax in Washington, D.C.
Broad tax reform - a project that has not been tackled in 25 years and that proved to be far beyond the reach of the ill-fated "super committee" - likely will wait until 2013.
Lurking in the background, now that the Joint Select Committee on Deficit Reduction has collapsed, are $1.2 trillion in automatic budget cuts set to take effect in early 2013.
Some Republicans are already trying to undo the cuts targeting defense spending. They face resistance from Obama and leaders of both parties. Another U.S. credit rating downgrade could follow any dismantling of the cuts, analysts said.
Enforcement of the cuts, known on Capitol Hill as the "sequester," will be a point of conflict, analysts said, possibly erupting in a legislative battle as early as mid-December and likely dragging well into the elections.
(Additional reporting by Richard Cowan, Kim Dixon, Patrick Temple-West and Lucia Mutikani; Editing by Andrew Hay)
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