On payroll tax cut, GOP caves to Obama

House Republicans caved to President Barack Obama’s demand for a two-month payroll tax cut extension, ending an impasse that threatened to raise taxes on 160 million Americans.

The capitulation came fast Thursday afternoon as House Republicans found themselves increasingly isolated in insisting that a full one-year extension was the only solution to the year-end crisis. The end of this debate will also come quickly — the House and Senate are expected to clear the legislation on a voice vote Friday morning.

In announcing the deal Thursday evening, Speaker John Boehner said Republicans had won new provisions that would protect businesses from certain payroll reporting requirements. Republicans also got Democrats to agree to accelerate the meeting of a joint House-Senate conference committee to negotiate a full-year deal.

The pre-Christmas breakthrough marks a major moment in Obama’s relationship with the Republican House — Obama had come under fire from Democrats for conceding too much too soon throughout the year, but on this deal he’s getting exactly what he wants.

The news of a major concession by House Republicans came amid strong signals that all sides were looking for an exit strategy that would prevent a tax hike on 160 million working Americans, a termination of some unemployment benefits and a 27.4 percent cut in Medicare reimbursement rates for doctors.

Obama, who has been turning up public pressure on the House to pass the Senate bill, said Thursday that the House "needs to pass a short-term version of this compromise" — phrasing that matched Senate Minority Leader Mitch McConnell’s in leaving room for House Republicans to send a tweaked version back to the Senate. And two freshman House Republicans in swing districts, Reps. Rick Crawford (R-Ark.) and Sean Duffy (R-Wis.) caved on Thursday, calling on their colleagues to give in.

Still, the Thursday conference call was needed to deliver the news to agitated House Republicans. It was in a similar virtual gathering on Saturday that House Republicans balked at a bipartisan Senate compromise on the bill, forcing House GOP leaders to come up with a Plan B.

But rank-and-file Republicans acknowledge that their party has taken a public relations beating at the hands of the president over the last five days, and that there might come a point at which lawmakers would rather concede than continue fighting a tough political battle.

“"Probably there is," said Rep. Kevin Brady (R-Texas), who was appointed as a House conferee to negotiate with senators who already had left town.

The ball got rolling Thursday on deal making when McConnell called on the House to pass a short-term payroll tax extension — while pushing Senate Majority Leader Harry Reid (D-Nev.) to appoint conferees to negotiate a full-year extension of the tax break.

McConnell's statement came just 30 minutes after Speaker John Boehner said that he and House Republicans weren’t backing down from their push for a one-year extension of the tax cut, which expires Dec. 31.

The move was classic McConnell. A shrewd insider who knows how to work all the angles in Washington, McConnell in one fell swoop put out a potentially game-changing statement of compromise and distanced himself from an unpopular House Republican position while still offering Boehner an escape hatch.

"The House should pass an extension that locks in the thousands of Keystone XL pipeline jobs, prevents any disruption in the payroll tax holiday or other expiring provisions, and allows Congress to work on a solution for the longer extensions," McConnell said in the statement.

Speaking at the White House, Obama called on House Republicans to follow McConnell’s lead. And while the payroll issue has been a political disaster for the GOP, Obama said the debate wasn’t about which party is up or down.

"[W]hat we have to remind ourselves of is that this is about people. This is about the American people and whether they win. It’s not about a contest between politicians," said Obama, flanked by participants of a White House Twitter campaign who told the president what it would mean to lose $40 a paycheck if the tax break expires.

"Enough is enough," Obama added. "The people standing with me today can’t afford any more games. They can't afford to lose $1,000 because of some ridiculous Washington standoff."

The quick change in tone engineered by McConnell seemed to indicate that the payroll tax mess could be hitting a turning point three days before Christmas. But it all depends on where Boehner tries to lead his GOP troops — and whether they’re willing to move toward any version of a short-term compromise.

Later Thursday, signs of cracking among the House Republicans' rank-and-file began to surface. Duffy demanded that his leadership bring up the Senate bill immediately, and Crawford (R-Ark.) also asked for a vote on tax break extension.

"More often than not an 'all or nothing' attitude produces nothing," Crawford wrote in a letter to Boehner. "An 'all or nothing’ attitude is not what my constituents need now. My constituents need a Congress that is willing to put all options on the table, even those that are not yearlong plans, to avoid higher taxes on more than 160 million Americans."

McConnell, who is at home in Louisville, Ky., called Boehner before the Speaker's Thursday morning news conference to give him a heads-up that he would be issuing the statement, sources said.

With the White House and House Republicans deeply entrenched in their positions, McConnell — who's remained silent about the payroll tax fight all week — seemed ready to deal.

"The McConnell solution provides a way for both sides to get what they want," said one GOP aide familiar with negotiations.

Privately, Republicans were none too happy with McConnell's position.

"I guess it's nice of him to chime in now that the only option to prevent us from being labeled tax raisers is the stupid two-month extension," said a senior GOP House aide.

Reid sent senators home for the holidays last weekend after they passed the two-month deal by a lopsided 89-10 vote. But he vowed that Democrats "will not rest" until they broker a year-long extension of the payroll tax cut, unemployment benefits and payments for Medicare physicians known as the doc fix.

House Democrats, who held a dueling news conference on Thursday, quickly learned of McConnell’s statement.

“It’s clear as I see the reporting that broke that Sen. McConnell has in fact joined with the other Republican senators on calling the speaker of the House to pass the Senate compromise bill,” said Rep. Chris Van Hollen (D-Md.). "That’s the bottom line."

Before McConnell's statement, the speaker appeared to be sticking to his guns. Boehner called the White House on Thursday and asked Obama to send members of his economic team to Capitol Hill to try to figure out how to put together a yearlong plan — a request Obama rejected, according to a Boehner aide. The White House said Obama told Boehner that the two-month plan is still the "only viable option currently on the table."

"The fact is, we can do better," Boehner told reporters at a news conference Thursday morning. "Americans are still asking the question, 'Where are the jobs?' It’s time for us to sit down and have a serious negotiation and solve this problem so that American workers don’t see their taxes go up in January."

With this quick concession by Republicans, the tax break will stay in place.

Jonathan Allen, Marin Cogan and Tim Mak contributed to this report.