Jobless Aid Bill Hits Deficit Wall in Senate

By Beacon Staff

WASHINGTON – President Barack Obama’s renewed call for more stimulus spending as insurance against a double-dip recession hit a roadblock in the Senate on Wednesday, the victim of election-year anxiety over huge federal deficits.

A dozen Democrats joined Republicans on a key 52-45 test vote rejecting an Obama-endorsed, $140 billion package of unemployment benefits, aid to states, business and family tax breaks and Medicare payments for doctors because it would swell the federal debt by $80 billion.

The swing toward frugality runs counter to the advice of economists who support the bill’s funding for additional jobless benefits and help to states to avoid layoffs of public service jobs. They fear that the economy could slip back into recession just as it’s emerging from the biggest economic downturn since the Great Depression.

Federal Reserve Chairman Ben Bernanke warned last week that while lawmakers need to come up with a plan for tackling the nation’s long-term deficit crisis, the U.S. recovery is still fragile. It’s too early for large, immediate spending cuts, Bernanke said.

“We’ve got to do more to build on the existing jobs momentum and that’s what these targeted measures are about,” said White House economist Jared Bernstein.

The Senate earlier passed another version with even bigger deficits. But that was before tea party-backed candidates running on anti-deficit, anti-big government platforms began knocking off more established politicians in spring primaries.

Despite the loss, Democratic leaders predicted serenely that a scaled-back version of the measure — extending unemployment benefits for the long-term jobless and providing $24 billion in aid to the states — could pass, possibly as early as later this week, after relatively minor revisions.

“We need to change a few things,” said Majority Leader Harry Reid, D-Nev.

Finance Committee Chairman Max Baucus, D-Mont., immediately opened negotiations with a handful of GOP targets on a new, slimmer version.

But Republicans cautioned that the margin of Wednesday’s vote was a bad sign for a bill that, even after revisions, would still likely add more than $50 billion to deficits over the next decade. Democrats would need 60 votes, 15 more than they got Wednesday, to prevent Republicans from blocking the bill.

“All I can tell you is that consensus about borrowing, debt, spending is growing stronger in our caucus and I think it is in the Democrats’ as well,” said Sen. John Thune, R-S.D.

Obama renewed his push for the measure last weekend, warning that “hundreds of thousands” of state and local government jobs could be lost without $24 billion in Medicaid money to help states balance their budgets and $23 billion more to prevent layoffs at local school districts around the country.

Democratic aides requiring anonymity to speak frankly about the private negotiations said lawmakers were working on a new bill that would roll back last year’s $25-a-week increase in unemployment checks and give doctors just a seven-month reprieve from scheduled cuts in their Medicare payments instead of relief through 2011.

Also under discussion was paring back a new tax on investment fund managers, replacing the lost receipts with still more revenue from an increase in the per-barrel tax paid into the oil spill liability trust fund. Now limited to 8 cents a barrel, the tax could rise to as high as 49 cents a barrel.

But top Democrats were standing strongly behind $24 billion in help to state governments for the Medicaid health program for the poor and disabled. Some 30 states have incorporated the money into their budgets for the fiscal year starting July 1 and governors say that without it, they’ll have to lay off thousand of workers.

“The effect on the economy of not doing this … would be disastrous,” Pennsylvania Democratic Gov. Ed Rendell said. “If we lose this (Medicaid) money, we will have to lay off 20,000 people.”

The renewed stimulus money is part of a catchall measure combining the jobless aid and help for states with the renewal of dozens of popular tax breaks for businesses and individuals, including a property tax deduction for people who don’t itemize, lucrative credits that help businesses finance research and develop new products, and a sales tax deduction that mainly helps people in states without income taxes.