With the two-month stopgap put to bed, all eyes turn to the next round on the fight to extend a payroll tax cut and unemployment insurance. Once this law is signed, lawmakers will have until the end of February to reach agreement on what they claim to want, a year-long extension on the above two measures and a doctor’s fix. Here are some of the main issues:

• The conference: As part of this deal, there will be a traditional House-Senate conference to iron out differences between the one-year extension that the House passed a few weeks ago, and (theoretically) the two-month stopgap passed through the Senate. Both Harry Reid and Nancy Pelosi named their conferees today. Reid chose Sens. Max Baucus, Jack Reed, Ben Cardin, and Bob Casey. Pelosi named Reps. Chris Van Hollen, Xavier Becerra, Henry Waxman, Sander Levin and Allyson Schwartz.

Many of the House Republican conferees already named by John Boehner expressed opposition previously to extending the payroll tax cut at all. But these conferences are largely for show. I expect the ultimate deal will get hammered out by the leadership once again, if there’s a deal to be had.

• The dynamic: Democrats had some things on their side this time around. The holiday break provided a backdrop where phrases like “Scrooge” and “lump of coal” could be freely thrown around. They can try the same dynamic next time to punish the other side, but I would imagine a more united front between House and Senate Republicans this time around. Moreover, John Boehner and Mitch McConnell have a conference committee on which they can pass the blame in the event of a collapse. The conference committee didn’t get things straight, after all, so you cannot blame them. Plus the House GOP, humiliated once, would not want to get humiliated again.

• The State of the Union: This address to Congress, traditionally something close to a nominating speech in a re-election year, now takes on a new significance. The parties will be in the midst of talks on how to extend these measures to the end of the year. Voters will have made their decisions in the GOP primaries and caucuses in Iowa and New Hampshire. The President will have a large stage to demand the full-year extension, bringing out all of the tactics we saw over the past couple months.

• The pay-fors. The parties were said to be about $90 billion apart on a year-long extension when talks broke down. That’s on a total of about $200 billion for the total bill. But now, $33 billion has passed, with a pay-for that surely would have been used in a long term deal. So now the parties are $90 billion apart on a $167 billion bill. In other words, there’s a lot of room here.

Harry Reid has vowed to trot out the millionaire’s surtax again, but frankly that doesn’t have a lot of merit at this point, considering how it was abandoned once already. Actually the proper move here is to not pay for these measures at all. The US can still borrow at a negative rate over the long-term, and these short-term measures will have no bearing on the long-term deficit. There may be some schadenfreude with a millionaire’s surtax, but in terms of aggregate demand, the proper move right now is to run a higher deficit. Traditionally, Republicans have said that tax cuts shouldn’t be paid for, and Democrats have traditionally said that emergency extended benefits for the unemployed shouldn’t be paid for. They ought to live up to their rhetoric. In fact, the House bill increased the deficit by $25 billion, so we’re already on our way with this idea.

• The riders. The real problems with the House bill were all of the policy riders and “reforms” they tried to usher in. I would suspect that they will demand the rollback of the EPA regulations on industrial boilers, a key part of their bill, in any final agreement. And the changes to unemployment insurance, allowing states to mandate drug tests or work toward a GED as a condition of receiving benefits, will be another demand. Democrats sidestepped most of these in the short-term agreement, but the long-term one is another ballgame.

One hope is that Democrats can force a rider here. As mentioned before, the two-month deal didn’t change the look-back on the Extended Benefits program, which means that 20 weeks of unemployment benefits will expire for most states in 2012. Democrats ought to demand an increase in the look-back so those benefits are restored.

• The pipeline. And that’s where the decision on the Keystone XL pipeline comes in. The 60-day expedited schedule on that dovetails with the 60-day extension of the payroll tax cut and unemployment insurance. If, as expected, the State Department denies the permit, on the grounds that the 60-day timeline doesn’t give them the necessary time to study the project and the new route, Republicans will howl. And that could impact the deal on the long-term agreement. So I would expect the White House to wait that out as long as possible, until they get a deal passed by Congress on the long-term plan, before making any decision public.

More from Brian Beutler.

David Dayen

David Dayen

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