Republican Keystone, tax cut bill expect to pass on Tuesday (Reuters)

WASHINGTON (Reuters) ? A Republican bid to force President Barack Obama to speed up approval of the Keystone XL Pipeline project looked set to pass the House of Representatives on Tuesday but will likely stall in the Democratic-controlled Senate, aides said.

Republicans have linked the proposed Canada-to-Texas oil pipeline to President Barack Obama's efforts to extend a payroll tax cut for workers. Some economists warn that allowing the tax cut to expire could damage a fragile U.S. economic recovery.

The top Republican in Congress, Speaker John Boehner, said on Monday he was confident the House would pass a Republican measure that includes extending the tax cut beyond this year and sets a deadline for a decision on the fate of the delayed pipeline, which has drawn fire from environmentalists.

Boehner did not predict Senate passage, but told reporters, "I think we have a good shot."

For the House bill to win Senate approval, 13 Democrats would need to join the chamber's 47 Republicans to provide the needed 60 votes to clear a procedural hurdle. Only a handful of Democrats are expected to vote yes, aides said.

The State Department effectively slammed the brakes on the Republican effort on Monday. It said plans to fast-track the Keystone XL decision would violate environmental laws and force it to withhold approval.

"Should Congress impose an arbitrary deadline for the permit decision ... the department would be unable to make a determination to issue a permit for this project," the State Department said in a statement.

Republicans are widely seen as using Keystone as a bargaining chip in their negotiations with Democrats over how to pay for the $120 billion cost of the payroll tax cut. Democrats are pushing for a surtax on millionaires to pay for it, which almost all Republicans reject.

"There will be an agreement," a Republican aide said.

"It's just a matter of when," a top Democratic aide added.

Congress is due to go on holiday on Friday but may remain in session through next week if a deal remains elusive. Obama has also said he will delay his vacation in Hawaii to stay in Washington to secure an agreement.

The 4.2 percent payroll tax that workers pay to fund the Social Security retirement program will return to 6.2 percent if Congress fails to act by month's end. That would hike taxes on 160 million Americans an average of $1,000 per family.

Obama and fellow Democrats have led the charge to extend the tax break, cranking up political heat on Republicans to join in or face a voter backlash in the 2012 elections.

Chris Krueger of Guggenheim Securities' Washington Research Group, a private firm that tracks Washington for investors, said the Keystone project has helped put "Republicans on offense."

"They were getting clubbed before they dropped this into the negotiations," Krueger said. "Ultimately, it will likely get dropped but it will keep coming up in future negotiations".

Keystone backers, including trade unions normally friendly to Democrats, say the project would make the U.S. more energy independent and help create about 20,000 jobs to lower the stubbornly high U.S. unemployment rate, now at 8.6 percent.

Obama has delayed a decision on the pipeline project, pending further environmental studies. That would push the decision past next year's election and allow him to avoid angering environmentalists ahead of the campaign.

Senate Majority Leader Harry Reid, a Democrat, may offer an alternative to the House Republican bill, one that renews the payroll tax and extend jobless benefits without the Keystone provision, aides said.

But that will also likely fail, triggering negotiations between Reid and Boehner.

Aides and lawmakers say there are several areas for possible compromise in the final bill, which would also renew jobless benefits that are set to begin to expire on December31.

Republicans want to boost fees paid by Fannie Mae and Freddie Mac, government-sponsored entities that are the biggest providers of U.S. mortgage financing. This would save the Treasury about $38 billion and could win Democratic support. (Additional reporting by Andrew Quinn, editing by Chris Wilson)

Source: http://us.rd.yahoo.com/dailynews/rss/obama/*http%3A//news.yahoo.com/s/nm/20111213/pl_nm/us_usa_taxes

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