Top Democrats skeptical on stimulus tax breaks

By Jeremy Pelofsky

WASHINGTON (Reuters) - Top U.S. Senate Democrats on Thursday raised concerns about some of the tax breaks that may be included in a stimulus plan aimed at boosting the stricken economy, questioning if they would have a significant impact.

President-elect Barack Obama urged that state aid and spending on infrastructure be coupled with tax cuts in an effort to win over Republicans skeptical about large spending programs. The tax initiatives could total some $310 billion.

The Senate Finance Committee met behind closed doors to begin talks about the stimulus package, and one Republican leadership aide said Democrats were considering $188 billion in tax cuts for individuals and $76 billion for businesses.

Two ideas that have surfaced include a payroll tax credit for middle class workers of $500 for individuals and $1,000 per family, and a $3,000 tax break for each new worker businesses hire.

"I'm very worried about marginal incentives in a package that won't have much effect," said Sen. Kent Conrad, chairman of the Senate Budget Committee and a North Dakota Democrat.

"For example, a jobs credit, that seems improbable to me that if you give jobs credit to businesses in this economic environment that they're going to hire people to build things that can't sell," he told reporters.

Conrad also panned the idea of a payroll tax credit. "I don't think there's much bang for the buck there," he said.

Senate Finance Committee Chairman Max Baucus said he was tentatively looking to begin hammering out legislation in the committee a couple days after the January 20 presidential inauguration.

"Senators know that we have to act very quickly and have to act very effectively and efficiently," the Montana Democrat told reporters. "No one expressed any significant opposition to moving ahead because of the cost."

The Congressional Budget Office projected a $1.2 trillion budget deficit for the 2009 fiscal year, causing some gasps on Capitol Hill because that did not include the stimulus cost which could be $775 billion over two years.

Baucus said a lot of questions were raised about tax proposals, but added that it was too early to say what shape the stimulus will take. "I think it's too early to know."

Some Republicans, including Minority Leader Mitch McConnell, have pushed for cutting the 25-percent middle-class tax rate as a way to get money into the hands of Americans quickly.

Other Democrats expressed skepticism about the hiring tax credit, including Sens. Ron Wyden of Oregon as well as John Kerry of Massachusetts who noted that most companies that plan to hire are likely to do so anyway so the credit would not necessarily spur job growth.

"I'd rather spend the money on the infrastructure, on direct investment, on energy conversion and other kinds of things that much more directly, much more rapidly and much more certainly create a real job," Kerry told reporters.

(Editing by James Dalgleish)