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GOP backpedals on payroll fight

Democrats learned a valuable lesson in December, during the payroll-tax fight that was going their way: when Republicans are losing, their negotiating

Democrats learned a valuable lesson in December, during the payroll-tax fight that was going their way: when Republicans are losing, their negotiating posture can and will change.

Indeed, during that initial round of the dispute, GOP negotiators quickly lost all leverage because Democrats simply didn't believe Republicans were prepared to shoot the proverbial hostage. As of this afternoon, the same dynamic appears to have played out once more.

We talked earlier about the looming deadline for the payroll tax break, and the poor odds of success unless the GOP became more flexible. In a major surprise, Republicans not only changed course, they abandoned one of their central demands.

House Republicans said Monday that they would offer a measure to extend the current payroll tax cut for the rest of the year, dropping a previous demand that the tax break be offset.The move marks a sharp turnaround for GOP leaders, who just last week were maintaining that the payroll tax holiday for 160 million Americans would have to be offset. But after taking a political pounding in December, House Republicans are adopting a new strategy.

This is, of course, the approach policymakers should have taken from the beginning. Instead of debating how best to pay for the tax break, the correct answer was obvious all along: stop trying to pay for it. Republicans were never going to agree to a millionaires' surtax; Democrats were never going to agree to total capitulation; so forgetting about offsets was always the path of least resistance.

Economic growth is more important than the deficit anyway, and paying for the tax break necessarily meant finding a way to take money out of the economy -- which would undermine the point of the tax break in the first place.

GOP officials said all along -- at least up until a few hours ago -- this approach would be wholly unacceptable. What changed their minds? Details are still coming together, but I suspect the prospect of being blamed for a middle-class tax increase in an election year may have had something to do with it.

For proponents of the payroll break policy, this is encouraging, but they might want to keep their champagne on ice. Today's surrender from Republican leaders represents progress, and there's obvious reason for optimism, but there are a couple of caveats to keep in mind.

For one thing, Republicans are retreating on the payroll fight, but let's not forget, the larger package is a broader piece of legislation that also included an extension of emergency unemployment benefits and the Medicare "doc fix" on physician reimbursements. As part of this new approach, GOP leaders are separating the tax break from the rest of the bill, effectively saying, "We're caving on the payroll tax, but we'll keep fighting on jobless aid and Medicare reimbursements."

The other provisions matter, and by separating the biggest piece of the puzzle, Dems will have less leverage when negotiating on the other measures.

What's more, the new Republican offer will reportedly be brought to the House floor as early as this week, but success is far from assured, especially if the bill is on the suspension calendar, which would necessitate a two-thirds majority to pass.

Rank-and-file GOP House members are already on record against the very idea of a middle-class tax break, and we've seen repeatedly over the course of the last year that Republican leaders in the chamber aren't exactly in a position to bark orders at their caucus -- at least if they expect those orders to be followed.

House Democrats will likely see today's announcement as a surrender and be inclined to accept the offer. But will the combination of House Dems and House GOP leaders be enough to get this across the finish line? Time will tell.