Democrats try scaled down tax bill

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

With some centrist lawmakers balking at the cost of the original package, House Democratic leaders scaled back unemployment benefits and doctor payments, according to a summary released late Wednesday.

The latest version of the legislation would add about $90 billion to the deficit over 10 years, down from $134 billion in the original legislation, according to the nonpartisan Congressional Budget Office.

"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 to give the Senate more time to consider the measure, but extended negotiations pushed a House vote back to Thursday at the earliest.

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

The revised bill would postpone pending cuts to doctors in the Medicare program for 1-1/2 years, down from 3-1/2 years in the original bill.

That would push the bill's total cost down to a level less likely to alarm centrist lawmakers like Democratic Senator Kent Conrad who are reluctant to add to a budget deficit expected to approach last year's record $1.4 trillion figure.

MEDICARE PAYMENT SYSTEM FLAW

A flaw in Medicare's payment system pays doctors at outdated rates, which would amount to a 21 percent pay cut unless Congress patches it with a periodic payment update.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 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 the bill reaches 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 revised bill's $127 billion in new spending would be offset by $43 billion in new taxes, according to CBO.

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.

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 and Philip Barbara)