House approves pared-back tax and spending bill after deficit fears spur cutbacks

WASHINGTON (AP) — House Democrats on Friday salvaged a bill to continue providing unemployment checks to people out of work more than six months and revive tax breaks popular with families and businesses.

But spending cuts demanded by Democratic moderates unhappy about voting to increase the deficit will mean layoffs next year by state governments and no health insurance subsidies for people laid off after Memorial Day.

The House approved the legislation in a 215-204 vote that capped a turbulent week for Democratic leaders, who were forced to kill $24 billion in aid to cash-starved states and $7 billion for health insurance subsidies for laid-off workers. The programs were created by last year's economic stimulus bill and Democratic leaders had wanted to extend them.

Left standing is the unemployment insurance extension and a grab bag of unfinished business, including numerous spending measures and a renewal of more than 50 tax breaks for individuals and businesses.

The legislation, which now faces an uncertain fate in the Senate, spends about $115 billion on tax breaks and spending such as assistance for doctors facing lower Medicare payments, a summer jobs program sought by minority lawmakers and settlements of long-running class-action lawsuits brought against the government by black farmers and American Indians.

Offsetting tax increases such as a new levy on investment and hedge fund managers helped bring the bill's drag on the federal deficit down to $54 billion, according to the Congressional Budget Office.

Despite House action, Democrats will miss a deadline of passing a jobless benefits measure before Memorial Day. The Senate left Washington Friday without acting on the legislation. The extended benefits program for the long-term jobless expires June 2, though the immediate impact will be relatively slight.

Still, it's an embarrassment for Democrats and is the third time this year that the extended unemployment insurance program will have lapsed, though only a small fraction of the 11 million people receiving unemployment benefits have been left in the lurch.

President Barack Obama issued a statement praising the measure, but said Congress should restore in future legislation the funding cut from the measure and also pass aid to school districts to help them avert teacher layoffs. But such moves face an uphill road after this week's events.

The weeklong turmoil in the House reflected increasing anxiety among fiscally conservative "Blue Dog" Democrats unhappy about adding to the deficit as the national debt closes in on $13 trillion. A version circulated last week would have added $134 billion to the deficit and was declared dead on arrival by deficit-conscious lawmakers.

Lawmakers also approved, by 245-171, a $23 billion provision to delay a scheduled 21 percent cut in Medicare reimbursements to doctors until 2012.

The move to drop the aid to states was a big blow to the nation's governors, who are desperate for fiscal relief as weak tax revenues are forcing painful cutbacks, including layoffs and furloughs of state workers. Many states had already incorporated the money into their budgets for next year.

Democrats say that continuing unemployment benefits would not only help the jobless but provide a boost to the economy since the money is typically spent immediately and spurs demand.

"With this vote, we can help families across the country and continue the path we set out on last year to help dig the country out of a terrible recession," said Rep. Louise Slaughter, D-N.Y.

Republicans countered that the $58 billion in tax increases to partially pay for the measure — including $11 billion from quadrupling to 34 cents the per-barrel tax that oil companies pay into the Oil Spill Liability Trust Fund — are job killers. And they lambasted the new spending in the measure.

"This is not a jobs bill," said Rep. Wally Herger, R-Calif. "It is just another extension of the 'tax too much, spend too much, borrow too much' philosophy that we have come to expect" from Democrats.

About 200,000 people per week are set to begin losing jobless benefits when an extension of unemployment insurance expires next week, though lawmakers are likely to seek to restore them after the fact.

The cost of the bill passed Friday would be partially offset by tax increases on investment fund managers, oil companies and some international businesses. The tax increases total about $57 billion over the next decade. Changes giving underfunded pensions more time to improve their finances would raise $2 billion.

Democrats lauded a provision that they said would cancel a tax break for companies that ship U.S. jobs overseas.

(This version CORRECTS the vote total on the Medicare reimbursements provision to 245-171, not 245-177.)