Payroll tax deal passes Congress in rare win for Obama

The US Congress has approved a short-term renewal of a payroll tax cut, a day after House Republicans caved in to overwhelming pressure on the issue.

The bill extends the tax cut as well as unemployment insurance for two months.

Lawmakers held voice votes on the deal, requiring only a few members to be present.

A joint conference committee will work on a year-long deal after the holiday recess. Mr Obama signed the bill before leaving for Hawaii for the holidays.

In a statement at the White House, he urged Congress to work on a longer extension to the package "without drama, without delay" in the new year.

"We have a lot more work to do," said Mr Obama. "This continues to be a make or break moment for the middle class in this country."

The tax break will affect the pay slips of some 160 million American workers.

After Republicans and Democrats passed the bill in the Senate last Saturday, John Boehner, the Republican Speaker of the House of Representatives, put the deal to members of his party.

But that conference call last weekend prompted a revolt from Tea Party-backed lawmakers, prompting this week's political showdown.

The president and his Democratic allies kept up relentless pressure on the House Republicans.

Republican divisions

But perhaps most tellingly, Mr Boehner and his caucus were pilloried by fellow Republican lawmakers, Bush White House strategist Karl Rove and even the conservative editorial board of the Wall Street Journal.

On Thursday, the embattled House Speaker told members of his party they would make a U-turn, during a muted conference call where they could not ask questions.

It was a rare retreat for Republicans, who since gaining control of the House in 2010's mid-term elections have wrung a string of concessions from the White House.

Under the compromise, House Republicans came away with face-saving language to make the package more small-business friendly.

Last week, Republicans also forced Mr Obama under the deal to make a politically awkward decision within 60 days on a controversial oil pipeline from Canada to the US Gulf.

The two-month extension will cost $33bn but be covered by a 0.1% increase on guarantee fees for home loans backed by federal mortgage lenders Fannie Mae and Freddie Mac.

Conservatives were initially sceptical about extending the payroll tax break, which economists say will aid US economic recovery.

But as Republicans demurred over the $120bn (£76bn) cost of the plan, Democrats accused them of backing tax cuts only for the wealthiest Americans.

Correspondents say Republicans lost the public relations battle and the party realised it would have faced blame for an effective tax rise on US workers in a general election year.

After Friday's voting, Senate Democratic Majority Leader Harry Reid told reporters he wanted the new year to be turning point for Congress.

"I hope this Congress has had a very good learning experience, especially those who are newer to this body," Mr Reid said in a press conference. "The American people need this institution to work effectively," he added.

Senate and House Democratic leaders named their appointees on Friday to a conference committee tasked with extending the compromise to a full-year version.