US tax fight heads toward expected deal: aides

Democratic and Republican lawmakers skirmished on Friday over plans to extend a payroll tax cut seen as crucial to a fragile US economic recovery, but aides predicted a last-minute deal. While independent economists say extending the tax cut would boost the economy at a critical time, both parties have been struggling to agree on a compromise deal in a rerun of this year's budget battles that have knocked investor confidence in Washington's ability to deal with its fiscal problems.
Both parties are under pressure to strike a deal at a time of economic difficulty. Failure to do so would mean an effective tax hike for millions of voters in 2012, when Republicans and Democrats will face off in presidential and congressional elections. "The optics politically to be seen blocking an extension of payroll tax is lousy - and neither wants their fingerprints of blame on it for not getting it done before Christmas," said Ethan Siegal of The Washington Exchange, a private firm that tracks Washington for institutional investors.
Senior party aides predicted on Friday that common ground would be soon be found to extend a reduction of the payroll tax, which helps fund the Social Security federal retirement program, and renew jobless benefits for millions of Americans.
"Everybody figures it will happen. It has to. No one wants to raise taxes or end jobless benefits," one aide said. "The only real question if it will be next week or the week after."
Democrats pounced on Republican moves to include a controversial pipeline project in the tax-cut bill, citing environmental concerns. But they also said attempts by Republicans in the House of Representatives to kill new federal controls on industrial boilers and incinerators would keep toxic pollutants like mercury in the skies for years to come. Democrats on the House Energy and Commerce Committee said the Republican bill also would weaken Obama's landmark healthcare reform law by undermining tax credits and subsidies designed to make health insurance affordable.