Democrats try scaled down tax bill

WASHINGTON (Reuters) - Congressional Democrats on Wednesday cut the cost of a package of spending and tax hikes by nearly a third and delayed action for one more day, as they raced to ensure passage before safety-net programs expire next week.

With some lawmakers balking at the cost of the original package, House Democratic leaders agreed to scale back unemployment benefits and doctor payments, according to congressional staffers.

The latest version of the legislation would add about $94 billion to the deficit over 10 years, down from $134 billion in the original legislation, according to congressional staffers.

"We're determined to get this bill passed by the end of the week," said Chris Van Hollen, a member of the House Democratic leadership.

House Democrats had hoped to pass the bill earlier in the week, but a Wednesday vote was unlikely.

"My expectation is we'll put that on the floor in the very near future," said House Democratic Leader Steny Hoyer.

The original bill would postpone pending cuts to doctors in the Medicare program for 3 1/2 years, adding $63 billion to the budget deficit. Scaling back that time frame back to about 1 1/2 years would bring down the total cost and increase its chances for passage, aides said.

A flaw in Medicare's payment system pays doctors at outdated rates, which would amount to a 21 percent pay cut, unless Congress patches it with a periodic payment update.

"If that is all we can get right now, we'll take it," said John Crosby, executive director of the American Osteopathic Association.

If the legislation stalls, unemployment aid and health benefits for the jobless will run out for hundreds of thousands of Americans starting next week. Although the economy started climbing out of recession in mid-2009, unemployment has remained near 10 percent and is projected to stay stubbornly high.

The original bill planned to extend the programs through the end of the year. The latest proposal would see them expire at the end of November.

One of the most controversial aspects of the bill would increase taxes on fund managers in private equity and other firms to at least 35 percent from the current 15 percent. The legislation also tightens tax rules for multinational companies and oil companies in particular.

Financial interests are lobbying heavily to kill that part of the bill, which would raise about $20 billion over a decade.

A Democratic aide said provisions other than the Medicare issue were unlikely to change before coming to the House floor.

Labor unions, some governors, doctors and senior groups are pressing for its passage.

Republicans oppose the bill, citing its deficit impact. Senate Republican leader Mitch McConnell said the cost wiped out savings estimated from the healthcare overhaul that passed earlier this year.

"This is fiscal recklessness," McConnell said. "And that's why even some Democrats are starting to revolt."

The original bill's $174 billion in new spending would be offset by $40 billion in new taxes, according to the nonpartisan Congressional Budget Office. The latest version calls for $145 billion in new spending.

LOBBYISTS FAN OUT

Lobbyists on both sides fanned out across the Capitol on Wednesday and warned that jobs would be at stake if the legislation went through -- or did not.

Pennsylvania Democratic Governor Ed Rendell said Republicans were winning the rhetorical war over the deficit. He said his state would have to lay off 25,000 workers if $24 billion in federal health payments to states was not renewed and that 30 other governors also depended on that money.

"Do people want to see fireman and policemen and EMTs (emergency workers) and teachers laid off? Of course not." Rendell said.

In the U.S. Senate, Democratic Leader Harry Reid has threatened to keep the chamber in session through the weekend to get the bill passed before June, when unemployment benefits and other safety net provisions expire.

Reid said on Wednesday there would be enough votes to get the bill through the Senate once it passes the House.

Most business groups, from the Chamber of Commerce to investment fund managers, are lobbying against the bill.

"This goes to the heart of how partnerships have been taxed for decades and to whether there is any sweat equity people put into business," Jeff DeBoer, executive director of the Real Estate Roundtable.

One exception is the National Retail Federation, which is pushing for renewal of a tax provision that shortens the period companies can take deductions for fixing up stores.

"It sounds like an arcane tax issue but it's really an important jobs issue," spokesman Craig Shearman said.

(Additional reporting by Thomas Ferraro; Editing by Peter Cooney)