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Senate passes payroll tax cut, spending bill


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(Reuters) - The Senate on Saturday approved a two-month extension of a payroll tax cut and a $1 trillion bill to fund the government, resolving the latest in a year-long series of tense political stand-offs but setting up fresh battles for 2012.

Democrats and Republicans were unable to agree on how to pay for a full-year extension of the tax cut and long-term unemployment benefits, as President Barack Obama requested. So senators settled, by a vote of 89-10, for a short-term measure that sets up a debate early next year - just as presidential and congressional election campaigns kick into high gear.

"It would be inexcusable for Congress not to further extend this middle class tax cut for the rest of the year," Obama said at the White House shortly after the Senate passed the bill. Senators then left town, to return for business on January 23.

The payroll tax cut bill keeps the 4.2 percent tax rate from jumping to 6.2 percent for 160 million workers on January 1.

Economists have warned that a failure to keep the workers' tax cut in place next year would hurt a U.S. recovery already exposed to troubles in debt-stricken Europe. Some said it could lop as much as 1 percentage point off economic growth.

While it is far too early to know how Congress would address the issue in two months, it will be politically difficult for Congress to allow workers to be hit with a 2 percent payroll tax increase with elections approaching.

Over to you, President Punter...
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