By Richard Rubin, CQ Staff
May 28, 2010 -- Despite defections from some conservative and freshman Democrats, the House endorsed a $113 billion package of tax breaks and social spending programs Friday, concluding a week of frenzied activity that saw the measure shrink dramatically.
The Senate had already left Washington for the Memorial Day recess, which means that expanded unemployment benefits will expire during the recess, along with a number of other programs and provisions.
The House first voted 215-204 for the bulk of the tax and benefit extensions. Then it voted 245-171 to shield doctors from a 21 percent Medicare payment cut that is due to take effect June 1, granting them a 2.2 percent increase for the rest of this year and an additional 1 percent boost next year.
Democratic leaders had struggled to cobble together a package that would attract enough votes to pass, seeking to alleviate a range of concerns among their members.
Many lawmakers were loath to vote for spending that would add to the record federal budget deficit, especially when they lacked evidence that the Senate could muster the 60 votes needed to clear the bill.
The final version would still add $54.2 billion to the deficit, according to the Congressional Budget Office, and it is likely to be amended in the Senate in June.
The last extension of the unemployment benefits, "doc fix" and other provisions — such as the national flood insurance program — will expire while Congress is out of town. The tax breaks covered by the legislation, such as the business research and development credit and the deduction of state and local sales taxes for individual taxpayers, expired at the end of 2009.
Efforts to reach agreement on a package that could clear both chambers fell apart. The Senate is expected to pick up the House measure after it returns June 7 and may make more changes to it.
Although Congress eventually may extend most of the expiring provisions retroactively, it is likely to take several weeks to do so — with a loss of jobless benefits for some individuals and disruptions to a number of agencies and programs in the meantime.
House Democrats scaled back their ambitions repeatedly over the past week, after moderate Blue Dogs and a number of Democratic senators complained about earlier versions that would have added more than $100 billion, and then more than $80 billion, to the deficit.
To help reduce the bill's deficit number to $54.2 billion, lawmakers shortened the extension of unemployment benefits, through Nov. 30 instead of Dec. 31. They also continued the Medicare payments to doctors for 19 months instead of 3.5 years. And they jettisoned entirely the earlier version's extensions of Medicaid assistance to the states and expanded COBRA health insurance subsidies for jobless workers.
That means the extra federal Medicaid funding provided to states under the 2009 stimulus law (will lapse at the end of this year. The expanded COBRA subsidies expire at the end of this month.
In response to the April 20 offshore oil rig explosion and subsequent massive leak in the Gulf of Mexico, the final bill would increase the excise tax that funds the Oil Spill Liability Fund to 34 cents per barrel, rather than 32 cents as initially proposed. The current tax is 8 cents per barrel.
The leadership also altered the bill's extension of the "above-the-line" tax deduction for qualified education expenses, reducing its cost to $693 million over 10 years, compared with $1.5 billion in the earlier version.
The new version retains other provisions of the earlier legislation, such as a summer jobs initiative, Build America Bonds assistance for state and local governments, and money for legal settlements of long-running class action lawsuits brought by Native Americans and black farmers.
The Justice Department, which negotiated the $3.4 billion settlement in Cobell v. Salazar, the suit involving alleged government mismanagement of Indian assets, said that in light of the House vote, "the parties have agreed to extend the May 28, 2010, legislative enactment deadline for congressional enactment to June 15, 2010."
John Boyd, founder and president of National Black Farmers Association, said, "Today was a good step by Speaker Pelosi and the House. We have one chamber behind us and one more to go. I think it's going to be a much closer vote in the Senate."
Offsets for Tax Breaks
The bill is partially offset under pay-as-you-go principles, but the "doc fix" and extension of unemployment benefits would add to the deficit.
CBO reported total outlays of $102 billion. But the true cost of the package appeared to be closer to $113 billion, when all of the revenue-raising offsets in the bill are added to the emergency and exempt spending that would increase the deficit.
The offsets include a change in the tax treatment of the "carried interest" earned by real estate investors, venture capitalists and private equity managers. Changes incorporated with an amendment to the rule on Friday would delay the effective date to Dec. 31 from the date of enactment, but the tax change still is controversial in the Senate.
The bill would place new limits on companies' ability to use foreign tax credits, because Democrats say that current tax law provides an incentive to move jobs to foreign countries.
"It pays for the creation of those jobs by saying that those who outsource those jobs can't get off the hook and have to pay their taxes," said Robert E. Andrews, D-N.J.
Multinational corporations have argued that the changes would harm their ability to compete in overseas markets, and they noted that many of the complex ideas have not been aired.
Republicans complained about the 11th-hour negotiations and said they received the final text of the measure just minutes before debate began on the rule.
"Nobody even knows what's in it," said Pete Sessions, R-Texas. "The Senate has already gone home. . . . So, what is the point? Why is the Speaker having this bill today on the floor?"
Ways and Means Chairman Sander M. Levin, D-Mich., dismissed the GOP complaints. "The basic bill has been here for more than a week, so anyone who says they don't know what's in it has failed to read. It says and means jobs and jobs and jobs," he said.
— Ellyn Ferguson contributed to this story.
