TAX NEWS - June 2010

US Senate Democrats Lack Votes For Tax Package As Vote Looms

Senate Democrats lack the votes needed to pass a sprawling package to extend jobless benefits and expired tax cuts heading into a key procedural vote slated for Wednesday.

So far, Democratic leaders have failed to attract the support of a single Republican senator, and they are facing pressure from within their own ranks to reduce the cost of the package, which in its current form would add $85 billion to the deficit over the next 10 years.

Senate Finance Committee Chairman Max Baucus (D., Mont.), the main author of the bill, worked to convince his colleagues that those investments--including $ 24 billion in aid to states and $23 billion to prevent scheduled Medicare payment cuts to doctors--were needed so as not to smother a still-nascent recovery.

"We do need to act aggressively to reduce our long-term deficits. But first we must pull ourselves out of this 'great recession,'" Baucus said on the Senate floor Tuesday.

Several moderate Republicans whom Democrats in the past have successfully wooed on close economic votes have all indicated they won't support the legislation as it currently stands.

Maine Republicans Susan Collins and Olympia Snowe both said they would vote against the measure, as did Sens. Scott Brown (R., Mass.), and George Voinovich (R., Ohio).

"I just think they've souped this thing up with a bunch of stuff that shouldn't be there. If it is, they should pay for it," said Voinovich.

The bill would extend unemployment aid until the end of November. It renews a host of expired tax cuts like the research credit for businesses and the state sales tax deduction for individual taxpayers.

Its cost is partly offset by a tax increase on fund manager pay, among other provisions.

Snowe indicated she has multiple objections to the bill. She wants to offset the cost of the doctors' Medicare cuts, perhaps by re-directing unspent stimulus funds, and she opposes a provision that would subject more of small business owners' income to Social Security and Medicare taxes.

The Senate could vote as early as Tuesday on a GOP alternative to the Democratic bill that would reduce the deficit over the long term, rather than cost money. It would use a combination of unused funds from last year's economic stimulus plan and hefty budget cuts across most agencies of the federal government.

"People are really concerned about spending, particularly if there's no attempt to pay for it," Sen. John Thune (R., S.D.), the measure's main sponsor, and a member of the Republican leadership team said Tuesday. "Just declaring it an emergency and adding it to the debt is no longer an option."

Also expected were votes on amendments affecting the oil industry. One, put forward by Sen. Bernie Sanders (I., Vt.), would remove $35 billion in tax breaks for large oil companies over the next decade. That money would be used both to pay down the federal budget deficit and to promote investments in alternative energy sources. President Barack Obama proposed a similar tax increase in his budget request delivered to Congress in February.

A measure pushed by Sen. David Vitter (R., La.) would mandate that any increase in the per-barrel levy charged to oil exploration companies would have to be kept in a fund specifically earmarked to deal with future oil spills. Democrats have proposed hiking that fee to 41 cents a barrel from 7 cents and using the new revenue to pay for some of the tax provisions in the bill.

Senior Senate aides said votes on both amendments could occur on Tuesday afternoon, but cautioned that nothing had been agreed to by lawmakers yet.

On the broader package, at least one Democratic senator has said he will vote no, while a second said he is undecided, but expressed concern about the size of the bill.

Sen. Ben Nelson (D., Neb.) said he will vote against the legislation, saying that while he supported deficit spending when the economy was on the brink of an economic recession, it didn't make sense now that a recovery was underway.