WASHINGTON (Reuters) - The top Senate Republican on Thursday sought to break a year-end impasse over extending a payroll tax cut for 160 million Americans, an issue that has deeply divided his party and raised the risk of an economic downturn in 2012.
Mitch McConnell urged fellow Republicans in the House of Representatives to drop their opposition to a Senate-passed bill that extends the payroll tax cut for two months while speeding up President Barack Obama's decision on a controversial oil pipline project between Canada and the Texas Gulf Coast.
Simultaneously, McConnell urged Democratic Senate Majority Leader Harry Reid to appoint negotiators to work on the longer-term deal demanded by House Republicans.
McConnell's proposal was the strongest sign yet that the stand-off between House Republicans and Democrats could be resolved since House Speaker John Boehner, the top Republican in Congress, scuppered the Senate-brokered deal last weekend.
"House Republicans sensibly want greater certainty about the duration of these provisions, while Senate Democrats want more time to negotiate the terms," McConnell said in a statement. "These goals are not mutually exclusive. We can and should do both."
There was little apparent daylight between McConnell's proposal and the White House position on the issue: pass the two-month extension now and negotiate a full-year extension later.
McConnell's statement broke a nearly week-long silence on the House Republican opposition to the bill he negotiated with Reid. It came just moments after Boehner told reporters he was standing firm in his demand for a one-year extension because it would create greater certainty for workers and businesses.
OBAMA REBUFFS BOEHNER REQUEST
Republican senators, leading conservatives and Republican presidential contender Newt Gingrich, however, are pressuring House members to compromise amid fears the party could face a voter backlash in November's presidential and congressional elections if taxes go up.
In a phone call with Obama on Thursday, Boehner said a one-year deal was still possible before the payroll tax cut expires on December 31 and asked the president to dispatch his advisers to Capitol Hill so a deal could be forged.
Obama, who had called the speaker on Wednesday to urge him to support the 60-day fix, declined Boehner's request, an aide to Boehner told Reuters.
The White House said Obama had told Boehner he was committed to begin working immediately on a full-year deal once the House passed the Senate bill for the two-months extension.
House members, after initially expressing skepticism about extending the tax cut at all, are now demanding the $120 billion one-year extension, despite the fact that both parties have been unable to agree so far on how to pay for the full year.
Democrats want to pay for it with a tax increase on the wealthiest Americans, while Republicans want to pay for it through spending cuts.
If Congress fails to get a deal, Americans will be hit with a $1,000-a-year tax hike on January 1. Economists warn that could deal a blow to the country's fragile economic recovery and make it more susceptible to a recession.
In urging House Republicans to back the Senate bill, McConnell said the Keystone XL pipline provision would lock in thousands of new jobs. TransCanada's proposed pipeline would feed some 700,000 barrels of day of crude from Canada's oil sands to Texas refineries.
Obama has delayed a decision on the pipeline until 2013 while alternative routes are studied for environmental reasons. The White House has said that any attempt to speed up the process could result in a permit being denied for the project.
The Keystone provision was not enough to prevent House Republicans from revolting against the Senate deal last weekend.
If Boehner tries to sell McConnell's plan to his caucus he may struggle to persuade Tea Party movement Republicans elected in November 2010 on a wave of voter anger over a bad economy and government spending.
They have proved uncompromising during a series of battles with Democrats this year over taxes and spending that have brought the government to the brink of a government shutdown three times and cost the country its prized AAA from Standard & Poor's ratings agency.
(Writing by Ross Colvin, additional reporting by Thomas Ferraro, Donna Smith and Kim Dixon; Editing by Vicki Allen)
