00:50 - Source: CNN
Congress reaches payroll tax deal

Story highlights

NEW: Obama says he will sign the agreement when Congress passes it

The compromise raise the deficit by $89 billion over 10 years, the CBO says

All three Senate Republicans on the negotiating panel don't sign the final agreement

The deal extends payroll tax cut, unemployment benefits, and "doc fix"

(CNN) —  

The Senate and the House of Representatives passed a bipartisan deal Friday extending the payroll tax cut and unemployment benefits while also avoiding a Medicare fee cut for doctors for the rest of the year.

The measure, a top priority of President Barack Obama, now goes to the House and Senate for final votes that could come as soon as Friday.

President Barack Obama has promised to sign the legislation as soon as he ends his current trip to the West Coast, ending debate on the politically sensitive measures at least for the duration of the election.

“I thank the many Americans who lent their voices to this debate in recent months,” Obama said in reference to his calls for people to pressure their elected representatives to pass the deal. “You made all the difference.”

However, none of the three Republican senators on the 20-member House-Senate conference committee that negotiated the compromise signed it, signaling possible GOP resistance when the measure comes up in the Senate.

Pay roll tax cuts – what’s at stake

House Speaker John Boehner, R-Ohio, earlier called the deal “a fair agreement and one that I support,” while House Minority Leader Nancy Pelosi, D-California, said: “I don’t see a scenario where our members will vote against it.”

Senate Democratic leaders also expressed support for the deal and noted the apparent split over it between Republicans in the Senate and House.

“I don’t get how not one Senate Republican conferee would sign a deal negotiated by their own party and endorsed by Speaker Boehner,” Sen. Chuck Schumer, D-New York, told reporters.

Each party’s top member on the conference committee also endorsed the plan, with Democratic Sen. Max Baucus of Montana calling it “very good for the country” while GOP Rep. Dave Camp of Michigan said he was “confident this can be concluded … and we’re moving forward.”

The roughly $100 billion payroll tax cut, a key part of Obama’s economic recovery plan, has reduced how much 160 million American workers pay into Social Security on their first $110,100 in wages. Instead of paying in 6.2%, they’ve been paying 4.2% for the past year and two months – a break worth about $83 a month for someone making $50,000.

The agreement came together this week after House Republicans dropped a key demand Monday, saying they would accept the extended payroll tax cut without including spending cuts elsewhere to pay the $100 billion cost.

According to the nonpartisan Congressional Budget Office, the agreement would increase the federal deficit by $89 billion over 10 years, mostly through decreased tax revenue. Numerous Republicans on Capitol Hill are vehemently opposed to any measure that increases the deficit. They are also concerned about diverting more revenue away from Social Security, and believe the unemployment insurance extension will discourage people from seeking work.

Boehner defended the decision to move forward with an unpaid extension, a move previously opposed by Republican leaders, by arguing it was the only way to prevent a tax hike demanded by Democrats to help pay the cost.

“We were not going to allow Democrats to continue to play games and cause a tax increase for hardworking Americans,” Boehner told reporters Wednesday. “We made a decision to bring them to the table so that the games would stop and we would get this worked out.”

While a number of conservatives are upset that the deal will add to the deficit, some GOP House members have nevertheless said they expect the package to ultimately pass with support from a majority of Republicans as well as Democrats.

“It’s the art of a deal. I mean, it’s a compromise,” Rep. Steve Latourette, R-Ohio, said earlier in the week. “You have people that didn’t get … 100% of what they wanted.”

The other two measures in the package – the unemployment benefits extension and the so-called doc fix – are estimated to cost a combined $50 billion. Unlike the tax cut, however, they will be paid for.

Funding sources to pay for the benefits extension and the doc fix include savings from broadband spectrum sales, increased pension contributions by new federal employees, and cuts to Medicare hospital and specialist fees that will not affect patients, according to the House Ways and Means Committee.

Several Democrats from Maryland and Virginia – near Washington – voted against the package because, they argued, it treats federal employees unfairly by requiring new government hires to contribute more to their pension.

Under the terms of the deal, in states with unemployment rates higher than the national average of 8.3%, the maximum time an unemployed person can receive benefits will drop from 99 to 73 weeks. The maximum length of benefits for people in states with an average unemployment rate or lower will drop to 63 weeks or as far down as 40 weeks.

The jobless have been able to collect up to 99 weeks of benefits since November 2009 as part of the nation’s unprecedented response to the recession.

In addition, states will be allowed to perform drug tests on individuals applying for unemployment benefits if those people lost their previous job because they either failed or refused an employer’s drug test. Individuals receiving unemployment assistance could also be tested if they are seeking a job that generally requires a drug test.

Also, welfare beneficiaries will be banned from accessing public assistance funds at ATMs in strip clubs, liquor stores, and casinos.

The current February expiration date for the payroll tax cut, the additional unemployment benefits and the doc fix were put in place by a short-term agreement reached by Congress in December. That agreement also set up the conference committee that resumed negotiations last month on a longer-term deal.

Political analysts believe the showdown over the payroll holiday has eroded GOP strength on the party’s core issue of lower taxes. Fearing negative repercussions, Republican leaders have now backtracked on the issue twice: dropping their opposition to the two-month extension last December and dropping their insistence on paying for a longer extension on Monday.

But the debate over whether and how to extend the tax cut has been a political loser so far for the Republicans. Democrats have gleefully highlighted the GOP’s reluctance to hold down the payroll tax rate, using the issue to portray Republicans as defenders of the rich who are indifferent to the plight of the middle class.

Political analysts believe the showdown over the payroll holiday has eroded GOP strength on the party’s core issue of lower taxes. Fearing negative repercussions, Republican leaders have now backtracked on the issue twice: dropping their opposition to the two-month extension last December and dropping their insistence on paying for a longer extension on Monday.

“December was a debacle,” Sen. John McCain, R-Arizona, said Wednesday. “We don’t want to repeat that.”

“I think the GOP has read the writing on the wall when it comes to the payroll tax cut,” said Brown University political scientist Wendy Schiller. “Americans are benefiting from it, and to take it away at this juncture leaves them open to charges of raising taxes. … It would severely hamper the GOP presidential nominee’s effort to defeat Obama.”

Boehner and other top House GOP leaders tried Monday to separate the payroll tax extension from provisions dealing with unemployment benefits and the doc fix, but quickly backed away from the proposal. Democrats objected loudly to the idea.

CNN’s Kate Bolduan and Lisa Desjardins contributed to this report