U.S. House of Representatives Speaker John Boehner on Thursday caved in to a growing chorus of criticism from both within and outside his Republican party and agreed to a short-term deal to extend a payroll tax cut for 160 million Americans.
In a major reversal that appeared to end a standoff with Democrats, Boehner told Senate Majority Leader Harry Reid he would set a vote in the House on a Senate-passed two-month extension of the payroll tax cut.
The Republicans' about-face contrasts with a year of dominance in Congress, in which their staunch opposition to higher taxes and spending has yielded a string of political successes. Their backpedalling this time handed a rare victory to President Barack Obama and Democrats.
We have fought the good fight. Why not do the right thing for the American people even though it's not exactly what we want, Boehner told a news conference.
The House could hold a simple voice vote on Friday that requires only a few members to be present and frees Republicans from having to cast politically difficult recorded votes. The Senate would also vote on Friday.
That procedure allows Boehner to push through the bill despite opposition from his often fractious caucus.
He told members about Thursday's deal in a muted conference call in which they could ask no questions. In a similar call last weekend, he faced an outcry from members who opposed a short-term deal, forcing him to reject the Senate bill and precipitating this week's crisis.
Obama, who repeatedly used the bully pulpit of his office this week to push Boehner to do a deal, said in a statement he hoped Congress would keep working to extend this tax cut and unemployment insurance for all of 2012 without drama or delay.
Under a deal agreed to by Boehner and Reid, both parties will immediately appoint negotiators to forge the full-year deal sought originally by Obama and most recently also by House Republicans who said a two-month fix created uncertainty.
The capitulation followed days of pressure on Boehner, from fellow Republicans in the Senate and conservative circles and from the White House and Democrats, who analysts said were winning the messaging war.
But maybe most crucial for breaking the impasse on Thursday was the intervention of Senate Republican leader Mitch McConnell, who called on the House to pass a temporary extension of the tax cut and then move to congressional negotiations on a payroll tax cut that would extend through 2012. U.S. Republicans risk backlash in 2012.
'RISKED LOSING SENATE'
Republican leaders feared fierce backlash from voters in the 2012 elections and many Republican lawmakers were already getting an earful from constituents back home. Had the deal failed to materialize, they were looking at an effective $1,000-a-year tax increase on the average worker starting on January 1.
If they had continued to dig in on this they risked losing the Senate in 2012 and handing President Obama the election without even having a fight, said Ford O'Connell, a Republican strategist.
That said, Republicans will be back at the negotiating table in the first two months of the year - in the middle of the Republican primaries for 2012.
For months many Republicans were cool to extending the payroll tax cut at all, saying it was not an effective economic stimulant. But in recent weeks they have reluctantly embraced it as Democrats relentlessly hammered away at the issue and economists warned failure to extend it by December 31 could deal a major blow to a fragile economic recovery.
Just the fact that it's a 10th hour agreement, not an 11th hour agreement, that's good but it's not quite great, said Gennadiy Goldberg, interest-rate strategist, 4Cast Inc., New York.
The deal hands a victory to Obama, who had made the effort to extend the payroll tax-cut the highest priority of his year-end agenda.
The win could help Obama in his bid for re-election in November 2012. The White House and many private economists have warned that if the tax cut were allowed to lapse, it could be a setback for the already sluggish economy.
The economy's woes are seen as the biggest hurdle to Obama's prospects for re-election and any improvement in growth would help him politically.
As the standoff played out over the last several days, several recent polls have shown an increase in Obama's approval ratings to nearly 50 percent after his popularity over the past few months had mired in the low 40 percent range.
However, there was one provision in the legislation that did not go as Obama planned - one which would force the State Department to speed up a decision on the stalled Canada-to-Texas Keystone XL oil pipeline.
The State Department had delayed its decision on the project until after the 2012 election, in order to find a new route around environmentally sensitive areas of Nebraska.
The State Department has said that if it were forced to make a decision early in the year, it would have to reject the permit.
(Writing by Ross Colvin and Mary Milliken, additional reporting by Thomas Ferraro, Donna Smith, Kim Dixon, Caren Bohan, Rachelle Younglai and Emily Flitter; Editing by Vicki Allen)