WASHINGTON (Reuters) - Senate Democrats hoping to revive a stalled package of unemployment aid and business tax breaks on Wednesday circulated a new compromise plan that would pare proposed aid to cash-strapped states.
It is unclear whether the revised proposal, which includes a tax increase on investment fund managers, would garner the 60 votes needed to advance the bill in the 100-member Senate.
Senate Finance Committee Chairman Max Baucus said on Wednesday he was still working to garner support for a compromise.
An earlier version of the bill, which would have added $55 billion to the deficit over 10 years, stalled last week amid growing concerns about the $1.4 trillion deficit and $13 trillion debt. The deficit is becoming a major issue in the run-up to the November congressional elections in which Republicans hope to regain control of Congress.
The latest compromise raises the current oil spill liability fund tax to 49 cents per barrel from 8 cents. It also includes some spending cuts and pares down proposed Medicaid aid to states struggling to balance their budgets in the face of a slow economy. States are pushing Congress to extend beyond the December expiration date the extra funds for Medicaid that were included in the stimulus plan passed last year.
The extension will “help states avoid further layoffs and service cuts that could otherwise slow recovery” from the worst economic downturn since the Great Depression, the National Governors Association said in a letter on Tuesday to leaders in the Senate.
“Governors are very sensitive to problems created by federal deficits and the national debt,” the bipartisan governors group said. “They are also aware of the role states play in either speeding recovery or prolonging the effects of a recession.”
Time is running out for lawmakers. Most states begin their fiscal year next week, and many banked on an extension of the Medicaid boost when drafting their budgets.
Medicaid is the healthcare program for the poor administered by the states and U.S. government that takes up, on average, 20 percent of state budgets.
Last year’s economic stimulus plan raised federal payments to states by 6.2 percent, with extra money for those with especially high unemployment.
States had asked for a six-month extension of the aid, at a cost of about $24 billion. The Senate proposal would continue the aid through June 2011 but gradually lower the amount.
Under language proposed on Wednesday, the increase would decline to 3.2 percent in the first three months of 2011 and to 1.2 percent through June. A draft floated on Tuesday had a phase-down to 5.3 percent and then 3.2 percent.
The compromise circulated on Wednesday also would stop a 21 percent pay cut for doctors treating patients in the Medicare health program for the elderly. That pay cut went into effect this month and the Senate last week voted on a bill to stop it.
But the House of Representative appears reluctant to vote on the Medicare measure before the Senate deals with the broader package that would extend jobless aid to hundreds of thousands of jobless workers whose benefits have run out.
The bill also would extend a package of popular business tax breaks that supporters say are necessary to help boost economic growth.
To offset the cost, the bill would require investment fund managers to pay normal income tax rates, at 35 percent on much of their earnings. Currently they pay a 15 percent tax rate.
The latest draft compromise would require investment fund managers to pay higher normal tax rates on 75 percent of income. For assets held longer than five years, they would pay higher rates on 50 percent of their income.
Reporting by Donna Smith and Lisa Lambert; Additional reporting by Kim Dixon; Editing by Kenneth Barry