The House and Senate won't hold votes today and most lawmakers are returning to their districts for the weekend. They face a Dec. 31 deadline to address the payroll tax cut or workers will receive 2 percent less in paychecks starting in January.

That's a result that both parties want to avoid, said Senator Joseph Lieberman, a Connecticut independent.

“It's a classic moment of this session of Congress, which is that both parties are for something and we can't figure out how to get it done,” he said.

The biggest fights likely will center on a Republican demand that the bill include language that would expedite the approval of the Keystone XL pipeline in Canada. The proposed TransCanada Corp. pipeline would carry oil from Canada to the U.S. The Obama administration put off a decision on the pipeline until 2013.

President Barack Obama has said he would reject efforts to tie approval of the pipeline to extension of a payroll tax cut. Boehner said the issue should be addressed in the package because development of the pipeline will create jobs.

'The Keystone pipeline project would create tens of thousands of jobs immediately,” Boehner said. “At a time when the American people are still asking the question 'where are the jobs?,' this is a bipartisan proposal that the president ought to endorse.”

Veto Possibility

Representative Jeb Hensarling, a Texas Republican, exhorted Obama not to use his veto on the pipeline issue.

“Mr. President, we will have some of your ideas in the bill, maybe it's time for you to try some of ours,” he told reporters after the Republican meeting.

House Democratic leader Nancy Pelosi of California said Republicans were “injecting poison pills” into the legislation, knowing Obama wouldn't sign it into law with those provisions.

Both parties are interested in continuing expanded unemployment benefits beyond their scheduled expiration at the end of the year. They are divided over the details. Over time, Republicans want to scale back how long the unemployed can claim compensation from 99 weeks to 79 weeks and eventually 59 weeks, said Representative Pat Tiberi, an Ohio Republican.

House Ways and Means Committee Chairman Dave Camp, a Michigan Republican, said yesterday that Republican leaders are still talking to members about unemployment benefits “to try to find a policy that everyone can agree on.

Pelosi said reducing the benefits to 59 weeks would be “problematic” for her caucus.

The Republican bill also would overturn an Obama administration rule that bars states from conducting drug tests for recipients of unemployment compensation and would include income-based eligibility for food stamps, according to Representative Aaron Schock, an Illinois Republican.

Both parties have expressed interest in avoiding reductions in reimbursements by Medicare that are due to begin Jan. 1. The Republican bill would prevent the cuts for two years and provide physicians with reimbursements that would be 1 percent larger than they were this year, according to Representative Phil Gingrey, a Georgia Republican who is a physician. That would cost $39 billion over 10 years, according to the Congressional Budget Office.

Longer-Term Fixes

Gingrey said Camp promised to consider longer-term fixes to the Medicare reimbursement system next year. Camp's pledge persuaded Gingrey to back the package, Gingrey said.

Republicans will find savings, according to Gingrey, by expanding the pool of higher-income Medicare beneficiaries who would be required to pay larger premiums for Part B physician care. The plan includes income-based eligibility for the drug benefit program under Medicare Part D.

Upper-income senior citizens would pay “closer to the true cost” of the programs, Gingrey said.

Another area of potential agreement is a provision that allows the complete write-off of capital investments that Representative Charles Boustany of Louisiana said would be included in the Republican measure. Unless Congress acts, the ability for full write-offs expires Dec. 31, and in 2012 companies could receive only 50 percent bonus depreciation.

Representative Sander Levin of Michigan, the top Democrat on the Ways and Means panel, said he could support that provision.

The Senate blocked separate Democratic and Republican bills yesterday that would have extended or expanded the payroll tax next year. The Democratic measure, which failed to advance in a 50-48 vote, would have reduced the payroll tax to 3.1 percent next year for employees. The Republican bill, which stalled in a 22-76 vote, would have extended the payroll tax at the current 4.2 percent rate for one year.

Both bills needed 60 votes to advance. After the votes, Reid said the Republican proposal being drafted in the House wouldn't succeed in his chamber.

“House Republicans' bill is a partisan joke that has no chance of passing the Senate,” he said in a press release. “Instead of playing political games, Congress should work to find common ground.”

The House could vote on the Republican plan as soon as Dec. 13, Gingrey said. The House's work won't likely be completed if Democrats in the Senate block the measure, setting up possible back-and-forth maneuvering between the chambers next week.

Boehner “put enough red meat for their Tea Party folks to get it done,” said Representative Henry Cuellar, a Texas Democrat. “But on the way back, he's going to lose a lot of those folks because they're going to strip out things and then it's up to the Democrats to come in and help it out.”

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