Cost concerns threaten jobs bill in Congress

Democratic leaders in the House of Representatives, who had already scaled back the bill, proposed dumping a further $30 billion in healthcare subsidies to appease centrist Blue Dogs worried about adding further 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.

The House could vote on the bill late on Thursday or Friday, lawmakers and aides said.

In the Senate, some lawmakers sought to scale back a proposed tax hike on fund managers, one of the bill's most controversial provisions.

But the Senate will not take up the measure until the week of June 7, Democratic Leader Harry Reid said.

Hundreds of thousands of jobless Americans could begin to see their unemployment benefits expire if Congress does not renew them before next week.

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.

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.

And several Senate Democrats hope to weaken the provision that would raise taxes on investment-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.

If the Senate adopts the measure, the two chambers would have to work out their differences, leading to further delays.

Democratic Senator Debbie Stabenow, whose state of Michigan has 14.9 percent unemployment, suggested continuing jobless programs for another 30 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.

Though 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 that 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 Alan Elsner and Todd Eastham)