Senate reaches tentative payroll tax deal

Updated at 9:20 p.m. ET

WASHINGTON - Senate leaders agreed on compromise legislation Friday night to extend Social Security payroll tax cuts and jobless benefits for two months while requiring President Obama to accept Republican demands for a swift decision on the fate of an oil pipeline that promises thousands of jobs.

Senate negotiators agreed to the two-month extension after failing to reach an agreement on extending the tax cut for another year, CBS News Capitol Hill producer John Nolen reports.

A vote is expected Saturday on the measure, the last in a highly contentious year of divided government.

House passage is also required before the measure can reach Mr. Obama's desk.

In a statement, White House communications director Dan Pfeiffer indicated Mr. Obama would sign the measure, saying it had met his test of "preventing a tax increase on 160 million hardworking Americans" and avoiding damage to the economy recovery.

The statement made no mention of the pipeline. One senior administration official said the president would almost certainly refuse to grant a permit. The official was not authorized to speak publicly.

Pipeline still a sticking point in payroll talks

Racing to adjourn for the year, lawmakers moved quickly to clear separate spending legislation avoiding a partial government shutdown threatened for midnight.

House passes $1T budget bill, avoids shutdown

The developments came a few hours after the White House publicly backed away from Mr. Obama's threat to veto any bill that linked the payroll tax cut extension with a Republican demand for a speedy decision on the 1,700-mile Keystone XL oil pipeline proposed from Canada to Texas.

Mr. Obama recently announced he was postponing a decision until after the 2012 elections on the much-studied proposal. Environmentalists oppose the project, but several unions support it, and the legislation puts the president in the uncomfortable position of having to choose between customary political allies.

Republican senators leaving a closed-door meeting put the price tag of the two-month package at between $30 billion and $40 billion said the cost would be covered through a fee on mortgages backed by Fannie Mae and Freddie Mac.

The legislation would also provide a 60-day reprieve from a scheduled 27 percent cut in the fees paid to doctors who treat Medicare patients.

Several officials said it would require a decision within 60 days on the pipeline, with the president required to authorize construction unless he determined that would not be in the national interest.

Senators in both parties hastened to claim credit for the deal.

Sen. Richard Lugar issued a statement that said the compromise included legislation he authored "that forces President Obama to make a decision" on the pipeline. The Indiana Republican faces a strong primary challenge next year from a tea party-backed rival.

Sen. Max Baucus, D-Mont., chairman of the Senate Finance Committee, said he had "brokered a final deal by bringing lawmakers from both parties together to support jobs."

Not all Democrats were as upbeat. "Look, this was tough. Harry (Reid) had to negotiate with Boehner and with McConnell," said Sen. Dianne Feinstein, D-Calif., referring to House Speaker John Boehner and Senate Republican Leader Mitch McConnell, the two Republican leaders in Congress.

Officials said that in private talks, the two sides had hoped to reach agreement on the full one-year extension of payroll tax cuts and jobless benefits that Mr. Obama had made the centerpiece of the jobs program he submitted to Congress last fall.

Those efforts failed when the two sides could not agree on enough offsetting cuts to make sure the deficit wouldn't rise.

Reid, in a statement, blamed Republicans, saying they had wanted to "cut Medicare benefits for seniors" and Democrats refused. GOP officials disputed him.

"We'll be back discussing the same issues in a couple of months, but from our point of view, we think the keystone pipeline is a very important job-creating measure in the private sector that doesn't cost the government a penny," said Sen. Mitch McConnell of Kentucky, the Republican leader.

There was no immediate reaction from House Speaker John Boehner. Neither he nor his aides participated in the negotiations, although McConnell said he was optimistic about the measure's chances for final approval.

Hours earlier, McConnell challenged Mr. Obama to give ground.

"Let's not just pass a bill that helps people on the benefits side, let's also include something that actually helps the private sector create the jobs Americans need for the long term," he said.

In a political jab, he added, "Here's an opportunity for the president to say he's not going to let a few radical environmentalists stand in the way of a project that would create thousands of jobs and make America more secure at the same time."

Mr. Obama said on Dec. 7 that "any effort to try to tie Keystone to the payroll tax cut I will reject. So everybody should be on notice."

More recently, a veto threat issued Tuesday against the House-passed version of the bill cited the introduction of "ideological issues into what should be a simple debate about cutting taxes for the middle class." Senior administration officials later told reporters that was a reference to the pipeline.