Politico - Senate Dems Close on Jobs Bill

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By David Rogers

Democrats on Tuesday moved within striking distance of the votes needed for passage of a long-delayed jobs and economic relief bill.

But without more push from the White House and Republican governors, the whole effort risks becoming this election year's Flying Dutchman -- a ghost ship sailing endlessly through Congress without ever finding a home port.

Months have already been consumed on this bill, and new Senate changes mean the unwieldy package will have to go back to the House, which only narrowly passed its version before Memorial Day. But revenue deals at the expense of the oil industry now unite most Democrats, and the restoration of $24 billion in state aid is a calculated gamble to bring governors off the sidelines and ask senators to support the bill and forestall deeper budget cuts and layoffs at home.

After a party luncheon Tuesday, Sen. Chuck Schumer (D-N.Y.) gave a qualified "I think so" answer to the question of passage. "The issue is to get a few Republicans to vote for it," Schumer told POLITICO. "The Republican governors, some of them seem to be energized. Whether it translates into votes, we'll see."

The showdown vote is expected next week on a motion limiting further Senate debate, and Finance Committee Chairman Max Baucus (D-Mont.) has moved aggressively to tap Big Oil again for the billions he needs to buy peace with private equity and venture capital interests that hold sway in his caucus.

Republicans cried foul, but as now proposed, the bill would raise $15 billion over the next 10 years through a fivefold increase in the fees paid by the industry into the federal oil-spill liability trust fund. Instead of 8 cents a barrel, companies would pay 41 cents -- almost a dime more than the House proposed and generating about $3.3 billion more to help Baucus placate a handful of Democrats from the East and West coasts.

At issue is a House-backed reform aimed at wealthy investment fund managers who now shelter much of their "carried interest" income as capital gains, subject to a much lower tax rate than that paid on ordinary income.

Less than three weeks ago, the tighter rules were predicted to save $18.7 billion in lost revenues over the next decade, but that number has been whittled down by $4.3 billion as tax writers have had to make adjustments to hold onto swing Democratic votes.

The House took the first step by postponing the effective date by about six months until January 2011. Baucus has had to go much further, coming up with a series of lower, blended rates more acceptable to the private equity and venture capital industry.

The House bill would tax 75 percent of "carried interest" earnings as ordinary income and 25 percent as capital gains. The Baucus plan would set a 50-50 split for the first two years, changing to 65-35 beginning in 2013. And venture capital companies stand to benefit most from an added category that allows a 55-45 split in cases in which assets have been held for seven years or longer.

More adjustments may still be made, but the mood among Democrats was decidedly more optimistic after Baucus's announcement.

"It's a positive step in the right direction; we're still trying to figure out if we can tweak it in effective ways that can encourage job creation and not undo the fundamental reform that we're trying to put in place," said Sen. John Kerry (D-Mass.) "We're very close. ... I'm confident we can get there."

"It's getting better. ... There may be ways within constraints to make it better," Sen. Mark Warner (D-Va.) told POLITICO. And in an interview, Sen. Maria Cantwell (D-Wash.) signaled strongly that she also would now support the package.

"I would go in a different direction in general. I'd rather be taxing derivatives than the amount of money that creates the next Google or the next Yahoo or whatever," she said. "But I think Max has worked something out."

The soft-spoken, sometimes bumbling, chairman has shown more edge and toughness as the fight has dragged on.

Hundreds of thousands of workers have already lost their unemployment benefits because of the impasse. And for Baucus, who worked with Republicans on their own Medicare prescription drug bill in 2003, there is a growing resentment of what he sees as the relentless "diatribes" about the Democrats' health reform when he is trying to move on to job creation and address real holes in the safety net for the unemployed and the elderly.

"The Republican leader sought once again to throw mud at the new health care law," Baucus fumed after a speech by Minority Leader Mitch McConnell (R-Ky.) on Tuesday. And, in a broadside of his own, he accused Republican senators of first opposing the law and then using "every opportunity they can to sow the seeds of doubt in the minds of the American people."

"They don't come up with constructive ideas of how to improve the workings of something already passed into law," Baucus said. "Rather, they stand up on the floor and tear down something that has passed."

By contrast, "We are talking about people who have worked, want to work and will work again," he said of the jobless who have lost their benefits "These are our neighbors. They need our help."

Republicans counter that the Democratic jobs package remains fatally flawed because of its cost -- including the $24 billion in state aid that Baucus wants to restore. That money would extend through June 2011 an ongoing provision in the American Recovery and Reinvestment Act of 2009 that helps states pay for their share of Medicaid, a joint state-federal health care program for the poor and the disabled. As many as 30 governors have already banked on the aid in their budgets for the coming year.

Senate Republicans are now crafting their own substitute bill, emphasizing fewer tax reforms and more spending reductions to offset the costs. The Recovery Act is sure to be targeted, but among the savings being considered is one that would go back into health care reform and again raise the ticklish issue of when it's too costly for families and individuals to have to buy insurance even with subsidies.

As enacted, the law drops the insurance mandate if the costs are above 8 percent of income. Republicans are proposing to lower this to 5 percent, thereby exempting more people -- some of whom would have no coverage -- but saving about $4 billion to be applied to the deficit.

But if Republicans want to relitigate health care reform, the White House also has to worry that the jobs bill impasse will set off sparks among liberal Democrats over the cost of a second war-funding measure now coming before the House.

Democratic leaders are slated to meet Wednesday with House Appropriations Committee Chairman Dave Obey to discuss strategy, but there has been no progress to date on a request first made in February. The Wisconsin Democrat is a critic of President Barack Obama's growing military commitments to Afghanistan and its neighbor Pakistan. And all these costs add directly to the deficit without any attempt at the offsets included in the jobs package.

Mindful of this, Obey has championed adding $23 billion in education funds to help forestall threatened teacher layoffs this summer and fall. But the risk for the White House is that a combination of anti-war Democrats and anti-spending Republicans could jeopardize the president's entire request.

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