President Barack Obama has said the wealthy should pay what he calls their fair share of taxes.
STORY HIGHLIGHTS
- NEW: Reid, McConnell say talks are underway on resolving spending, payroll tax issues
- The GOP and Democratic Senate leaders met Wednesday night
- Democrats are willing to drop their call for a "millionaires tax," a source says
- Hostility played out openly on the Senate floor on Wednesday
Washington (CNN) -- A day after a hostile exchange that epitomized Washington gridlock, Senate leaders on Thursday said they were discussing ways to resolve their differences over measures to keep the government funded after Friday and extend the payroll tax cut set to expire at the end of the year.
The comments by Senate Majority Leader Harry Reid, D-Nevada, and Minority Leader Mitch McConnell, R-Kentucky, signaled progress toward reaching compromises on the two main pieces of legislation under discussion before Congress goes into recess until next year.
After the Senate chaplain prayed for legislators to have "wisdom and understanding," Reid opened Thursday's session by acknowledging the harsh words from the day before, saying there was no need for he and McConnell to continue staking out their positions.
Over the next few hours, Reid said, "We're going to try to ... work toward resolving some of the outstanding issues."
His comments indicated the Senate would take up the spending proposal first, as sought by McConnell, in order to keep the government funded past the midnight Friday expiration of a temporary resolution passed earlier this year.
At the same time, Reid said, he and McConnell "have been in discussion" on the payroll tax measure and "we hope that we can come up with something that will get us out of here in a reasonable time in the next few days."
McConnell agreed with Reid, saying the two held "useful discussions about how to wrap this session up."
"We hope to be able to pass a combination of appropriation bills and we are working hard to figure out a way to resolve the remaining differences on the payroll tax extension and the related issues that are important to both sides, and we are confident and optimistic we'll be able to resolve both on a bipartisan basis," McConnell said.
The two Senate leaders held an hour-long meeting Wednesday night that included House Speaker John Boehner in what amounted to a last-gasp bid to end the political wrangling that threatened a partial government shutdown and raised public frustration with Congress even further.
A new poll released Thursday by the Pew Research Center for the People and the Press showed public discontent with Congress at record levels, with two-thirds of voters saying most members of Congress should be voted out of office next year.
Failure to pass the payroll tax measure, a major part of President Barack Obama's job creation plan, would cost working Americans an average of $1,000 in higher taxes next year.
2011 a big year for government shutdowns
Senate Democrats proposed a new tax on income over $1 million to help pay for keeping the lower payroll tax rate for another year, but Republicans have blocked the plan from proceeding on two separate occasions.
A Democratic source told CNN on Wednesday that Senate Democrats now plan to drop the so-called "millionaires tax" and will offer a new proposal instead.
No further details were immediately available on the new proposal, first reported by CNN, which emerged from a White House meeting between Senate Democratic leaders and Obama on Wednesday afternoon, the source said.
Obama for months has argued that the wealthy should pay what he terms their fair share of taxes.
A senior administration official told CNN the White House would not have any specific reaction to reports that Obama and Senate Democratic leaders were abandoning the surtax.
But the official, who was not authorized to speak on the record, said, "We've always been open to other pay-fors -- but as the president has said himself a couple of times in the last 10 days -- he won't accept a pay-for that's unbalanced and he won't allow extraneous political issues to get in the way."
On the separate appropriations measure backed by Republicans, White House communications director Dan Pfeiffer said Obama has concerns about some provisions "that would undermine Wall Street reforms, enact extreme social and ideological riders, undercut environmental protections and threaten the foreign policy prerogatives of the president."
He echoed calls Wednesday by Senate Democrats for Congress to approve a short-term spending plan to keep the government funded past Friday and allow negotiations to continue. The government has passed such measures, called continuing resolutions, seven times this year, Pfeiffer said.
On Wednesday, the political environment got so hostile that Reid and McConnell argued openly on the Senate floor over the order of votes on the appropriations and payroll tax measures.
Reid called then for a short-term spending extension to provide time to work out a deal on the payroll tax plan, while McConnell pushed for a vote on the full appropriations bill before Friday's deadline. Each accused the other of hidden political agendas for their stance.
However, Reid said Thursday he favored proceeding on the broader appropriations bill, which was worked out by a conference committee involving House and Senate members. It was unclear if he supported voting on the conference committee's version before Friday, or merely reaching agreement on the disputed provisions so that eventual approval would be certain.
His comments came after a threat by House Republicans to pass a broad appropriations package and go home for the holidays, leaving the Senate with the option of approving it or bringing a partial government shutdown after Friday.
The House rules committee will meet Thursday to work out the process for debating the measure, which could bring a vote on Friday.
Reid said it would be "a mistake" for the House to pass its alternative spending measure.
"I think what we should do is the conference report, and I think that is the direction we are headed today," he said. "There are still a couple of issues we have to resolve with the White House but I am in touch with them also."
Boehner said Wednesday that Senate Democrats were holding the appropriations measure hostage to negotiations on the payroll tax cut bill.
"It's pretty clear to all of us that President Obama and Sen. Reid want to threaten a government shutdown so they can get leverage on a jobs bill because the United States Senate can't pass one," Boehner said.
Health and Human Services Secretary Kathleen Sebelius sent a letter Wednesday night to employees that cited possible effects of a shutdown.
If funding lapses, she wrote, some employees would be furloughed. The letter was obtained by CNN.
CNN's Deirdre Walsh contributed to this report.
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