WASHINGTON — Congressional negotiators signed off Thursday evening on a $1 trillion spending agreement for federal agencies, just 28 hours before a deadline that would have led to a government shutdown.
After dropping policy prescriptions restricting travel to Cuba and a minor provision related to oversight of financial trades, members of the House and Senate appropriations committees gave final approval to the plan after a four-day standoff that was linked to a separate issue: President Barack Obama’s demands to extend the payroll tax holiday for 160 million workers.
That negotiation, lawmakers and aides said, also could be headed toward an agreement, with lawmakers thinking about extending the tax break for two months to buy more time to determine how to fund it without increasing the federal deficit.
There was a broad shift in tone Thursday on Capitol Hill as leaders on both sides stopped saying the other would be to blame for a potential shutdown and began sending signs of progress.
Talks on the payroll tax began after Democrats dropped their demand that the cut be paid for with a new surtax on those who earn more than $1 million a year.
“Yeah, that’s gone,” Senate Finance Committee Chairman Max Baucus, D-Mont., confirmed Thursday evening.
But it was not clear whether Republicans would drop a series of provisions added in the House intended to lure votes from conservatives who believe the tax holiday is bad economic policy.
The House “riders” included an effort to speed approval of the construction of the controversial Keystone XL oil pipeline, reforms to unemployment insurance, higher Medicare premiums for upper-income seniors and a year-long extension of a two-year pay freeze for federal workers.
The package also would extend unemployment benefits for the long-term jobless and avert a scheduled cut in Medicare reimbursement rates for doctors.
Baucus, who is negotiating the tax and unemployment package for Democrats, said one consideration was to link the eligibility period of unemployment benefits to the level of joblessness in each state. That would mean that laid-off workers in Nevada — which has a 13.4 percent unemployment rate, the nation’s highest — would be eligible to receive benefits for a longer period than those in North Dakota, the state with the lowest unemployment rate.
A senior Democratic aide said talks over how to pay for the extended tax cut for the full year were ongoing, but an agreement had been secured to at least continue the tax break for two months, at a cost of $40 billion. Among the ideas being considered to pay for the cut, the aide said, were raising fees Fannie Mae and Freddie Mac collect from lenders, selling wireless spectrum controlle d by the government and ending a tax break on the sale of corporate jets.
“There’s momentum building toward a comprehensive agreement, but still there are a lot of pieces to put together,” Baucus said.
To ensure the government remains funded, the White House and Democratic leaders signaled earlier Thursday that they would release their members to move ahead with the $1 trillion spending bill that the Appropriations Committee negotiated, paving the way for final votes on the measure in the House and the Senate.
A vote could occur as early as Friday, with Congress approving a temporary stopgap measure to provide time to complete their work when the legislation that is keeping the lights on ends at midnight.
Democratic leaders had blocked the bill from moving ahead after the White House said it wanted Congress to agree to extend the tax cut first and expressed lingering concerns about some of its provisions.
They included a provision barring the District of Columbia from spending local tax money on abortion, another blocking the implementation of new standards for energy-efficient light bulbs and a third reversing an Obama administration decision to loosen rules for Americans who want to visit family members in Cuba.
The goal of linking the payroll tax issue to the spending bill was to ensure Republicans in the House could not pass the funding measure and then leave for the holidays, forcing Senate Democrats to accept a Republican proposal to extend the tax cut or let it expire.
At the White House on Thursday, Obama reiterated that the move would be unacceptable to him.
“Congress cannot and should not go on vacation before they have made sure that working families aren’t seeing their taxes go up by $1,000 and those who are out there looking for work don’t see their unemployment insurance expire,” he said.
The hardball tactic of linking tax holiday negotiations as well as jobless benefits to the completion of the must-pass spending bill aggravated some Democrats who had worked with Republicans for months to hammer out the appropriations deal.
Rep. James Moran, D-Va., who sits on the key committee, said some Democrats had told the White House that “they should not be using federal employees as pawns in a larger issue.”
“I don’t blame them for trying to use every means available to them,” he said. “But I just don’t think that it’s right.”
The funding bill sets government spending for the year at $1.043 trillion, a level agreed to in the August deal that also raised the nation’s legal borrowing limit. The figure represents a 1.5 percent drop in spending from the fiscal year that ended Sept. 30.
That doesn’t count $115 billion for overseas military operations, a $43 billion dip since this past year as the war in Iraq winds down. It also doesn’t count $8.1 billion in emergency disaster-relief spending.
The measure outlines spending for three-fourths of the government — all but the departments of Agriculture, Commerce, Housing and Urban Development, Justice, State and Transportation, as well as NASA and some smaller agencies — which were settled in a November deal.
But it addresses funding for a wide swath of government programs, including Pell grants, border security and federal funding for the District of Columbia, and is designed to settle spending issues until nearly the next election, sparing the government the possibility of another shutdown. As Congress works to lower the federal deficit and reduce government spending, most domestic programs will see cuts.
The measure omits funding for the Internal Revenue Service to prepare for the 2014 implementation of the federal health-care law. But it increases funding for border agents and Immigration and Customs Enforcement.
It includes $8.4 billion for the Environmental Protection Agency, a $233 million drop from last year. And provides $550 million for Obama’s signature Race to the Top education program, which incentivizes school reform, a cut of more than 20 percent.
But the Indian Health Service would see funding rise to $237 million. And funding would increase for the Centers for Disease Control and Prevention and the National Institutes of Health.
Staff writer Felicia Sonmez contributed to this report.