(Corrects spelling to Jack Reed in paragraph 8)
* Democrats seek to muster needed 60 votes
* Measure would restore benefits for 1.7 million Americans
* Would make millionaires ineligible for such relief
By Thomas Ferraro
WASHINGTON, Feb 4 U.S. Senate Democrats on Tuesday set up a showdown vote with Republicans on a new bill to extend long-term unemployment benefits for 1.7 million Americans while making millionaires ineligible for such relief.
Democrats hold the Senate, 55-45, but may have difficulty mustering the 60 votes that will be needed on Thursday to clear a Republican procedural hurdle.
In a bid to build support, Democrats included a provision to bar those earning more than $1 million a year from drawing unemployment checks. The measure was modeled after one drafted a few years ago by Republican Senator Tom Coburn of Oklahoma.
Tax records show that in 2010 a couple of thousand unemployed millionaires managed to get federal or state jobless benefits, backers of the legislation said.
Senate Democratic Leader Harry Reid scheduled the vote for Thursday after rejecting Republican requests that they be allowed to propose a number of amendments to the Democratic bill.
In describing the bill on the Senate floor, Reid said, "What we are going to do is offer a fully paid for three-month extension of unemployment insurance."
"That's what Republicans said they wanted, and we agreed to it," Reid said, alluding to Republican demands last month. "We will not agree to an unlimited number of amendments."
The bill was introduced by Senator Jack Reed, a Rhode Island Democrat whose state has one of the highest jobless rates in the nation, more than 9 percent.
Senate Republicans last month blocked an earlier version of the bill, which Reed co-sponsored with Republican Senator Dean Heller of Nevada.
But, unlike the previous bill, the new one would fully cover the $6.4 billion cost of providing jobless benefits for an additional three months and would not increase the record federal debt load, Reed said.
In fact, Reed said, it would provide enough additional revenue to help reduce the debt by $1.2 billion.
Reed explained that the cost of restoring jobless benefits would be offset by "pension smoothing," which, he explained, would allow companies to use historical data in determining pension contributions.
That, in turn, would increase revenues and result in additional taxes to pay for the jobless benefits.
"It is technique that has been used before by both Republicans and Democrats in terms of paying for proposals," Reed said in a conference call with reporters. "I don't think that is going to cause any controversy."
A senior Senate Republican aide, however, said there could be resistance, noting that "pension smoothing" has been "a gimmick in the past, and it is still a gimmick."
The bill would renew benefits, retroactive to Dec. 28, when they began ending for the long-term unemployed, generally out of work for six months or more.
It would also give Congress time to explore ways to pay for restoring benefits for a full year and consider possible new job-creating proposals.
Initially, some 1.3 million unemployed people lost their benefits after Christmas, but that number grew in the past month to 1.7 million.
Although U.S. unemployment has fallen to 6.7 percent from 10 percent in October 2009, economists say some of the decline is because many have given up searching for work.
President Barack Obama, top fellow Democrats and their supporters say restoring the benefits are key to ensuring that those unemployed workers have a basic safety net in place while continuing to look for jobs.
They say such relief would also help the overall economy by pumping money into it. Recipients of jobless benefits receive on average about $300 a week. (Reporting by Thomas Ferraro; Editing by Paul Simao and David Gregorio)