US Congress deal averts shutdown threat

Senate Majority Leader Harry Reid discusses extension of the payroll tax cut 14 December 2011 Disagreement over payroll tax cuts is the latest impasse to hit Washington in recent months

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Democrats and Republicans in the US Congress have agreed a compromise spending bill to avoid a government shutdown.

The deal averts the possibility of US federal agencies shutting down because of a lack of guaranteed funding.

The House of Representatives and the Senate are both expected to vote on the controversial $1tn (£643bn) spending bill on Friday.

It is the third time this year the US government faced shutdown.

However, one of the key areas of disagreement - extending a payroll tax cut due to expire at the end of the year - remains unresolved, officials said.

"I am hopeful that the House and Senate can pass this bill tomorrow to prevent a government shutdown, fund critical programs and services for the American people and cut spending to help put the nation's finances on a more sustainable path," said House Appropriations Committee Chairman Hal Rogers, announcing the deal.

Funding for federal programmes expires at the end of the week, but Democrats had insisted they would not pass a funding bill without solving an impasse on a payroll tax cut.

Democrats, who control the Senate, dropped demands to fund the renewed tax cut with a surcharge on millionaires.

But they object to Republicans linking the tax to an oil pipeline project.

Republicans want the government to approve the Keystone XL pipeline linking Canada with the US Gulf Coast. They say it will create jobs and boost US trade.

The Obama administration has ordered an environmental review of that project, with results not expected until 2013.

'Partisan charade'

Rival party leaders in the Senate toned town their rhetoric on Thursday, saying that only a "few issues" remained.

Start Quote

We ought to finish our most immediate concern first”

End Quote Mitch McConnnell Republican Senate leader

The payroll tax cut is due to expire at the end of December, with the White House estimating that taxes would rise for about 160 million Americans if it is not renewed.

The administration says a family earning $50,000 (£32,000) would pay $1,000 more in payroll taxes next year if Congress does not act.

President Obama has been vocal about the tax issue in recent weeks, challenging Republicans who espouse a low-tax philosophy to agree with his policy.

But while the two parties have agreed over the need to renew the tax break, they have differed over how to pay for it.

Republicans have proposed cutting benefits while Democrats called for a surtax on those Americans earning over $1m (£600,000). That demand appeared to have been dropped on Wednesday.

Stop-gap

The looming deadline was the third time in 2011 that Congress had come close to failing to approve new funds to keep the government running.

The administration formally alerted government employees to the prospect of a shutdown on Wednesday, the Washington Post reported.

And the White House indicated that it would prefer Congress pass a continuing resolution - essentially a short-term measure approving stop-gap funding - that would fund the government for a defined period of time.

That solution, enacted several times already this year, would avoid a shutdown but force Congress to address the issue once again in 2012.

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