Reuters | The House of Representatives Friday passed a
scaled-back economic-stimulus package of tax breaks and safety net
spending that would raise taxes on fund managers and multinational
corporations.
Democrats say the bill will help bring down the 9.9 percent
unemployment rate, but it comes too late for hundreds of thousands of
Americans who will see their jobless benefits expire starting next week.
The bill would extend benefits through November, but the Senate left town for a week-long break without taking action.
Democrats aim to restore the payments when they return the week of June 7. But the unemployed also face a permanent loss of health-care subsidies, which were stripped out of the bill to win the support of cost-conscious moderates.
Congressional wrangling has delayed jobless benefits at least four times in the past year. Democrats say they will restore the benefits when they return in early June.
The bill passed 215 to 204, largely along party lines. At least 33 Democrats voted against it, and one Republican voted for it.
The delay until a Senate vote also gives Wall Street fund managers more time to try to weaken a provision to tax their earnings at regular income rates rather than lower capital-gains rates.
In a separate bill, the House voted 245 to 171 to postpone a scheduled pay cut for doctors under the Medicare health-insurance program, a delay that would cost $23 billion.
With November’s congressional elections looming, Democrats who control Congress face conflicting pressures to reduce the 9.9 percent unemployment rate and close the budget deficit, which hit a record $1.4 trillion last year.
At the beginning of the year, Democrats said job creation would be their top priority, but they have shown little appetite for ambitious measures such as last year’s $863 billion stimulus package.
Republican Representative Mike Pence called the bill “another last-minute, patched-up-together, hodgepodge to say they’re working on jobs.” He said broad tax cuts would do a better job of stimulating the economy.
FISCAL HAWKS
Democratic leaders trimmed the bill several times to satisfy fiscal hawks in their own ranks who balked at its cost. Most recently, they stripped out $30 billion in health-care subsidies for unemployed people and aid to cash-strapped states, and spun off the doctors’ money into a separate vote.
“This is a real victory for the moderates,” said Democratic Representative Dutch Ruppersberger. “Our country is weakened by the deficit.”
Combined, the two bills would add $54 billion to the deficit over 10 years — a sharp drop from the original version that would have increased it by $134 billion.
The bill would extend unemployment benefits through the end of November. It includes other job-creation measures, such as construction subsidies and a summer-jobs program for students.
The bill also renews a grab bag of tax breaks that expired at the end of 2009, such as a research-and-development credit for businesses.
To offset some of these costs, the bill tightens tax rules on multinational corporations and oil companies.
Democrats say it would close a loophole that encourages U.S. businesses to move operations out of the country.
“Can you believe that we have a tax policy that enables offshoring?” said House Speaker Nancy Pelosi. “It’s not right, it will be corrected today.”
The bill would boost the amount that oil companies pay into a trust fund to cover economic damages from oil spills to 34 cents per barrel, up from 8 cents per barrel.
Republicans said those tighter tax rules would harm employers and undercut the bill’s job-creation efforts.
The tax breaks will expire again at the end of 2010 but the tax increases are permanent, noted Representative Dave Camp, the top Republican on the tax-writing Ways and Means Committee.
The bill would raise $18 billion by targeting managers of private-equity, venture-capital, real-estate and hedge funds, amid widespread public outrage at Wall Street.
Fund managers pay a long-term capital gains rate of only 15 percent on the share of profits they retain, rather than the income-tax rate that tops out at 35 percent. Fund managers typically hold onto 20 percent of profits, which can amount to millions of dollars in a good year.
The bill would treat 75 percent of those profits as ordinary income. Until 2013, 50 percent of the profits would be treated as ordinary income.
Some Democrats in the Senate aim to water down that provision, further complicating the broader bill’s chances for passage in its current form.
“Everybody still seems to be nervous about it,” said Steven Schneider, a lawyer who works with real estate funds and developers opposing the tax. “I don’t think one week off ends the battle.”
