Brian Beutler December 15, 2011, 9:52 PM

House and Senate leaders have reached an agreement on a deal to avoid a government shutdown, and are nearing a separate deal on legislation to renew a soon-to-expire payroll tax cut, unemployment benefits, and a “doc fix” measure to prevent a steep, automatic pay cut to Medicare physicians.

The breakthrough comes just over 24 hours before funding for the government was set to run out, though the principals continue to squabble over policy measures and payfors attached to the payroll bill.

Democrats have officially dropped their push for a small surtax on millionaires as one means of offsetting the cost of the bill. And it’s unclear what they got in return, aside from a pledge from Republicans not to jam Democrats with their partisan payroll tax bill.

With the millionaire surtax gone, most of the cost of the bill will likely be paid for with budget cuts agreed to in Super Committee negotiations, which ultimately failed. To make up the difference, Democrats are insisting that the GOP abandon other, conservative payfors, such as greater means-testing in Medicare. Instead, they’re pushing Republicans to accept ideas like ending a tax benefit for corporate jet owners, and counting war savings toward the cost of the bill.

But it’s an expensive bill. Many of the payfors are contentions. And as a fall back, negotiators are kicking around the idea of extending the payroll cut and unemployment benefits for two months, and dealing with the rest of the year after Congress returns from holiday recess. Republicans aren’t as keen on this backstop as Democrats are, but it would prevent a temporary lapse in benefits while negotiators look for acceptable payfors under less heated circumstances.

Outside the payfors, Republicans are still pushing hard for a rider that would force the Obama administration to make a swift decision on the construction of the Keystone XL oil pipeline. Democrats, both on the Hill and at the White House, are softening their opposition to this demand. But it’s a tough call for Republicans as well. For them it’s a choice between embarrassing the Democrats and winning the politics and actually assuring that the pipeline gets built. The State Department, which holds the keys to the pipeline, insists that rushing the project will compromise their ability to conduct adequate study of the project and sign off on it.

DNC, Doc fix, Government Shutdown, Payroll Tax Cut, Unemployment