Senate passes $149 bln for jobless aid, tax breaks

People looking for jobs meet professionals from more than 30 employers at the UJA-Federation of New York's Connect to Care job fair in New York, in this file image from March 2, 2010.

WASHINGTON (Reuters) - The Senate on Wednesday passed a $149 billion package of jobless aid and tax breaks, as Democrats continued efforts to lower the 9.7 percent unemployment rate before congressional elections in November.

The measure, approved by a vote of 62 to 36, now heads to the House of Representatives, where many Democrats have pushed for more aggressive job-creation measures in the face of the worst U.S. economic downturn since the 1930s.

Democrats say job creation is their top priority this year as they head into an election season that could possibly cost them control of Congress.

Both chambers have now passed two job-creation bills, but they have yet to resolve their differences and finish legislation that President Barack Obama can sign into law.

Democrats passed an $863 billion stimulus measure last year to battle the recession. That effort created up to 2.1 million jobs, according to the nonpartisan Congressional Budget Office, but the high price tag has prompted a growing voter backlash.

The bill passed on Thursday by the Senate largely continues existing government policies. Jobless workers would see their unemployment benefits and healthcare subsidies extended to the end of 2010, while businesses would once again benefit from $25 billion worth of tax breaks that expired at the end of 2009.

The bill's $149 billion in new spending is partly offset by $37 billion in revenue raised by closing tax loopholes.

That could conflict with President Barack Obama's plans to use the new revenue to help pay for his proposed healthcare overhaul.

HELP FOR STATES

Cash-strapped states would get $25 billion to help cover their portion of the Medicaid government-run healthcare program for the poor.

More help could be on the way for states, which face yawning budget deficits and, unlike the federal government, must balance their budgets each year.

Representative George Miller, a senior House Democrat, introduced a bill on Wednesday that would give state and local governments an additional $98.5 billion to help avoid layoffs of teachers, police officers and other public employees.

Other House Democrats say Congress should boost transportation spending to put more construction workers back to work.

Both the House and the Senate have approved a $13 billion payroll tax cut for businesses that hire unemployed workers, but the Senate needs to approve the measure again before Obama can sign it into law.

White House economic adviser Christina Romer said on Tuesday that a similar hiring credit proposed by Obama would generate 250,000 jobs at a cost of $13 billion.

The U.S. economy has shed 8.4 million jobs since entering the recession in December 2007, though the pace of job loss has slowed since the recovery began in the second half of last year.

More than forty percent of unemployed Americans have been out of work for at least six months, the usual cutoff for jobless benefits. Congress extended the program to cover those out of work for nearly two years in some high-unemployment areas, but millions could still exhaust their benefits starting next month without a further extensions.

Unemployment aid does not directly create jobs, but economists say it is one of the most cost-effective ways to stimulate the economy because recipients spend the money quickly.

But it is not cheap. Extending benefits through the end of the year would cost $70 billion. Many Republicans voted against the measure, arguing that spending in other areas should be cut to cover all of its costs.

Republicans also say job creation has been hampered by a climate of uncertainty due to as-yet-unfinished Democratic initiatives like the effort to overhaul the healthcare system.

(Additional reporting by Lisa Lambert and Emily Kaiser; editing by Paul Simao)