Cost concerns delay jobs bill in Congress

Democratic leaders in the House of Representatives postponed the vote until Friday as they scrambled to nail down support. In the Senate, Democratic Leader Harry Reid said that chamber would not act until the week of June 7.

The delay means hundreds of thousands of jobless Americans will likely see their unemployment benefits expire starting next week, a disruption many have already suffered several times this year due to congressional wrangling.

It also gives fund managers more time to try to weaken a controversial proposal that would hike their tax rates. Some Senate Democrats aim to water down the measure.

With November's congressional elections looming, the Democrats who control Congress face conflicting pressures to bring down unemployment and close the budget deficit, which hit a record $1.4 trillion last year.

Members who are from low-unemployment areas are very concerned about the deficit. Members who are from high-unemployment areas are very concerned about the jobs, House Speaker Nancy Pelosi said at a news conference.

Pelosi and other House leaders, who had already scaled back the bill, proposed dumping a further $30 billion in healthcare subsidies to appease centrist Blue Dogs worried about adding to the budget deficit.

The latest version would add about $60 billion to the deficit over 10 years -- less than half the cost of the version Democrats had hoped to pass on Wednesday.

It's a lot better than what it was, said Representative Henry Cuellar, a Blue Dog who outlined the latest changes to reporters.

Democrats named job creation their top priority for 2010, but despite months of effort have only managed to enact one bill centered on payroll tax breaks.

With the U.S. national debt nearing a record $13 trillion, the public has become less tolerant of expensive stimulus efforts, analysts said.

The country has shifted dramatically in the last few months to favoring austerity and I think it's going to tie the hands of policymakers, said Greg Valliere, a political strategist at the Potomac Research Group.

NO MORE AID TO STATES

The current bill would continue elements of last year's $863 billion stimulus package, such as enhanced unemployment benefits, through the end of November. It would also renew a credit for business research and development costs and other tax breaks that expired at the end of 2009.

Cuellar said the latest proposal would strip out $24 billion earmarked to help cash-strapped states cover medical costs. Hammered by plunging tax revenues, state and local governments reduced spending by 3.9 percent in the first three months of 2010, the steepest rate since 1981.

The latest proposal would also strip out $6.8 billion in subsidies to help jobless people pay for healthcare, he said.

In the Senate, Democrats like Mark Warner and Robert Casey have proposed easing the tax hike on fund managers.

Under the current bill, 75 percent of a manager's income would be taxed at ordinary income rates of about 35 percent. They currently only pay 15 percent capital gains tax rates.

The Senate Democrats' amendment would tax only 60 percent of private equity, venture capital and real estate fund managers' income at the higher rate, a Democratic aide said.

Democratic Senator Debbie Stabenow, whose state of Michigan has 14.9 percent unemployment, suggested continuing jobless programs for 30 more days to give Congress more time to hash out its differences. Senate Democrats will try to pass a short-term extension but expect to be blocked by Republicans, said Reid spokesman Jim Manley.

Although the economy started recovering in mid-2009, unemployment is projected to stay high through 2012.

Representative Stephanie Herseth Sandlin, a Blue Dog whose home state of South Dakota has a 5.3 percent unemployment rate, said Congress should examine the effectiveness of jobless programs rather than simply continuing them. At some point these extensions will have to come to an end, she said.

The bill includes $22 billion to ensure doctors will not face a 21 percent pay cut for treating patients under the Medicare health-insurance program for 1 1/2 years. A flaw in the Medicare health-insurance program pays doctors at outdated rates unless Congress updates them periodically.

(Additional reporting by Thomas Ferraro and Susan Cornwell; Editing by Peter Cooney)