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The payroll cut's clouded future

It certainly looked like a breakthrough.
Will the leaders lead or follow?
Will the leaders lead or follow?

It certainly looked like a breakthrough. Mid-day yesterday, House Republican leaders, who'd insisted for months that the payroll tax break be fully paid for, made an unexpected reversal, abandoning their central demand.

So, is it a done deal? Time to move on to the next fight? Not just yet.

GOP leaders surrendered yesterday -- and incidentally, stepped all over their own Budget Day message about the deficit -- but they have not yet won over their own members. Indeed, the party leadership apparently didn't even communicate the plan to their own caucuses.

The announcement shocked rank-and-file members, who were back in their House districts. Senate Republicans were likewise caught off guard -- even one GOP leader who was trying to negotiate a compromise had no idea it was coming.And conservative ire rose throughout the day, threatening to derail Speaker John Boehner's plan to take the thorny issue off the table. [...]More than a half-dozen House Republicans, reached directly by POLITICO, declined to comment on the record about the decision, saying they wanted to hear the case from their leadership when they return Tuesday.... But speaking without attribution, the lawmakers were far less cautious and expressed extreme discomfort with the reversal.

House Speaker John Boehner (R-Ohio) and his leadership team believe their rank-and-file members will come around eventually. We are, after all, talking about a middle-class tax cut during an election year. But over the last year, there have been plenty of instances in which the House GOP leaders have done the following, and the followers have done the leading.

Boehner simply isn't a strong enough Speaker to set the agenda and tell his caucus to get in line behind him. He may have endorsed yesterday's capitulation, but whether Boehner has the votes to pass it is far less clear.

Also note, the relationship between rank-and-file House Republicans and the GOP leadership has been deeply strained following a lengthy series of disputes. Yesterday's surrender on a policy most House GOP members don't even like will not help repair the fissure.

But let's say for the sake of discussion that Boehner & Co. get this done and drag the bill across the finish line. Will it be smooth sailing in the Senate? Of course not.

Senate Republicans, like their House counterparts, generally don't want to extend the middle-class tax cut in the first place, and they're especially unhappy about doing so through deficit financing (the GOP only approves of passing tax breaks without paying for them when there's a Republican president). But the folks to keep an eye on in this process are Senate Democrats.

Initially, Senate Dems couldn't believe their good fortune when House GOP leaders caved yesterday. Upon further reflection, though, Democratic leaders in the upper chamber remembered they're holding the stronger hand in this fight and thought of a way to exploit that leverage.

Brian Beutler discussed this on last night's show and ran this report at TPM.

"We might amend it [the unpaid-for payroll tax cut] with UI and doc fix over here and ... the amends would be hard for Republicans to vote against, because we have worked with Republicans to find pay-fors for those pieces that are attractive to them."The doc fix and UI extensions cost together about $60 billion -- Dems think they can cover that cost over 10 years in ways that Republicans will have to accept. If that's correct, the whole saga could end with a quick ping pong game between the House and the Senate.

This may sound complicated, but it's actually a pretty clever strategy. The House may pass the payroll break, without trying to pay for it. If that happens, Senate Democrats want to put back the parts Republicans took out -- extended unemployment benefits and the Medicare "doc fix" -- while making sure those provisions are paid for.

The thinking is, this would give everyone what they want: Dems and the GOP would agree on the payroll tax cut, and on the other measures, Dems would approve the policies without deficit financing.

What's more, Democrats believe the House would have little choice but to pass this amended bill, since they will have addressed all of the Republican concerns.

Congress will, however, have to hurry -- the payroll break expires two weeks from tomorrow.