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WASHINGTON -- Congressional negotiators reached agreement Thursday night on a compromise spending bill to avert a federal shutdown and worked toward a deal renewing the payroll-tax cut and unemployment benefits for another year.
Senate Majority Leader Harry Reid (D., Nev.) said he was still optimistic that bipartisan talks on year-long extensions of the payroll-tax cut and unemployment coverage would succeed.
But senators prepared a second option as a fallback in case talks fell short.
As a Plan B, Mr. Reid said, they were also working on a two-month extension, which would also prevent cuts in Medicare reimbursements for doctors for that period.
"We're still working on the long-term" bill, Mr. Reid said as he left the Capitol after a day of talks over both the payroll tax and spending measures.
As for the two-month version, he said, "We'll only do that if what we're working on doesn't work out."
Mr. Reid's remarks put a slight damper on a day in which for the first time, Democratic and Republican leaders expressed optimism at prospects for swift compromise on their payroll-tax standoff and a spending battle that had threatened to shutter federal agencies beginning at midnight Friday.
"Congress should not and cannot 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," President Obama said as he encouraged Congress to reach a compromise.
Administration officials said they would insist that the payroll tax holiday be extended to prevent damage to the struggling economy.
When the Senate convened Thursday, Senate Minority Leader Mitch McConnell (R., Ky.) said he was "confident and optimistic" that Congress would be able to pass a huge spending measure and continue the payroll tax break before adjourning for the holidays.
It was a departure from the previous day, when he asserted that Democrats "obviously want to have the government shut down."
Wednesday's bristling rhetoric and partisan jabs all but vanished on Thursday.
Republicans agreed to consider changes to a $1 trillion spending bill compromise that they and at least one Democrat said had been wrapped up days ago.
The White House said it wanted adjustments.
There were separate negotiations on legislation to extend the Social Security payroll-tax cut and unemployment benefits.
Democrats abandoned their demand for a surtax on million-dollar incomes, removing a provision that Republicans strongly opposed.
House Speaker John Boehner (R., Ohio) minimized the concession, noting that Democrats lacked the votes to impose the surtax a year ago when they commanded 60 votes in the Senate.
Even so, he said, "there was some movement yesterday from the White House and Democrat leaders" toward a compromise.
Mr. Boehner also left open the possibility of a compromise on another key sticking point -- a House-passed provision that all but requires construction of the proposed Keystone XL oil pipeline from Canada to Texas.
Construction "will put 20,000 people to work immediately And there are about 115,000 other jobs directly related to it," he said.
Yet he skipped an opportunity to say construction of the project was a nonnegotiable condition as talks on the payroll-tax cut bill proceed.
Mr. Obama had threatened to veto the House-passed bill, in part citing the requirement for the pipeline.
Without an extension of the payroll-tax cut, 160 million Americans will have smaller take home pay beginning on Jan. 1, a fact that the President and leaders of both parties stressed as they looked for compromise.
The House is expected to approve the spending measure Friday and the Senate could follow suit, possibly the same day.
The two-month version of the payroll-tax cut and unemployment benefits bill is under consideration because so far, lawmakers haven't agreed on how a year-long extension would be paid for, said a Democratic aide who spoke on condition of anonymity.
The two-month bill would cost $40 billion, according to the aide, and would let lawmakers revisit the measure after returning to Washington after the holiday season.
Donald Stewart, spokesman for Mr. McConnell, said talks for a year-long bill will continue.
"We're 12 hours into this debate, they just started talking," he said. "I wouldn't hit the panic button."38.89037 -77.03196
Congressional negotiators work on payroll-tax cut, unemployment benefits.