Negotiations to renew a payroll tax cut for 160 million workers and jobless benefits for millions more kicked off on Capitol Hill on Tuesday, with both sides optimistic of an agreement despite last year's bitter battles over President Barack Obama's jobs proposals.
The House-Senate talks will focus chiefly on finding ways to finance the $10 billion a month cost of a 2 percentage point cut in Social Security payroll taxes that awards a worker making a typical $50,000 salary a tax cut of about $20 a week. Lawmakers also need to pay for the $45 billion or so cost of renewing jobless benefits for people out of work for more than half a year and the $20 billion a year cost of making sure doctors aren't hit with massive cuts to their Medicare payments.
Negotiators face a Feb. 29 deadline under a temporary measure enacted amid great acrimony just before Christmas.
The daunting challenge facing the negotiators is a cost of roughly $160 billion to extend the tax cut, jobless benefits and Medicare payments through the end of the year.
"We should be able to get it done," said top Senate GOP negotiator Jon Kyl of Arizona, who says last year's failed effort by a congressional deficit panel produced lots of proposals that can be used "offset" the cost of the payroll tax measure. "The Joint Select Committee identified a lot of good offsets and so the opportunity for us to get it done is there."
"It's our job to work together here to make sure this tax cut doesn't expire," said Sen. Max Baucus, D-Mont., the lead Senate negotiator. "We need to show we can rise above politics for the good of the country."
But given the remarkable dysfunction and acrimony surrounding virtually anything Congress does, there's no reason to assume the talks will go smoothly.
"It's not going to be easy finding these offsets," said Rep. Chris Van Hollen, D-Md., a veteran of the deficit supercommittee.
Senate defenders of federal workers — whose pension benefits and pay increases have been targeted by House Republicans for more than $60 billion in savings over the coming decade — are signaling they won't go along.
"I don't think it's the forum to take up these on federal workers," said Sen. Ben Cardin, D-Md., whose state is home to many federal workers.
As the same time, Hispanic groups, a key Democratic-leaning voting bloc are battling against a House proposal to raise $9 billion by blocking illegal immigrants from claiming the refundable child tax credit. Key Democrats like Baucus have signaled they could accept the idea, however.
Another question is whether to shorten the eligibility period for extended unemployment benefits down from the current 99 weeks or allow states to test unemployment benefit applicants for drugs, as House Republicans would like. The House measure would shorten the jobless benefits eligibility period to 79 weeks, though the improving job market in most states means that the actual duration of benefits would be 13 or 20 weeks less than that under current law.
Senate Majority Leader Harry Reid, D-Nev., said the negotiators should also take on dozens of tax breaks for businesses and individuals that expired last year, including a tax credit for business research and development, a deduction for state and local sales taxes and several breaks important to the energy industry. This $30 billion-plus package is a top priority of the capital's powerful lobbying community.