By Kim Dixon and Donna Smith
WASHINGTON (Reuters) - The U.S. Senate took up legislation to help the unemployed, businesses and cash-strapped states Tuesday as the White House defended continued job creation efforts despite concerns for long-term budget deficits.
Senate Democratic leaders said they were optimistic they could pass the far-reaching plan they hope will help cut into the 9.7 percent unemployment rate. The bill extends jobless payments for hundreds of thousands of unemployed workers whose benefits lapsed at the end of May.
To help pay the more than $100 billion cost over 10 years, the measure would raise taxes on investment fund managers, but at a lower level than legislation approved by the House of Representatives. The bill would also raise the oil spill liability trust fund tax to 41 cents per barrel from the current 8 cents per barrel.
"With so many Americans out of work, our country needs Congress to enact this legislation," Senate Finance Committee Chairman Max Baucus said in introducing the bill. "This bill continues valuable tax incentives to families and businesses that will help them in these difficult economic times."
Democratic leaders said they expect to win the 60 votes necessary to advance controversial legislation in the 100-member U.S. Senate. But Republicans balked at the cost of the bill, arguing Democrats are not serious about reducing deficits and improving the nation's debt outlook.
"Clearly, Democrats don't see a $13 trillion national debt for the emergency it is," said Senate Republican Leader Mitch McConnell. "Americans are as worried as I've ever seen about the course we're on. And they've got a simple message for Congress: stop spending money we don't have."
The House last month scaled back its version several times to appease wavering conservative Democrats grousing about its costs.
The $1.4 trillion deficit and rising debt have become huge issues in the run-up to the November congressional elections. Europe's debt woes and ensuing market turmoil have added to voter and business unease.
But Democrats argue the legislation will help keep the economic recovery on track. Many are worried that focusing too quickly on deficit reduction would choke off the recovery and jobs growth, which could hurt them worse in the November vote.
"I think this debate about jobs versus the deficit is a false choice," White House Office of Management and Budget Director Peter Orszag told the Center for American Progress.
"We face two very substantial and serious deficits. A near term jobs deficit with an unemployment rate that is unacceptably high. And a medium and long term (fiscal) deficit that ultimately would cause a crisis if it were not addressed," he said.
The bill would restore funding to states for six months to help them pay for their Medicaid health program for the poor and extends expired business tax breaks, such as the research and development credit. It would also stop a 21 percent pay cut for doctors treating patients in the Medicare health program for the elderly.
To help pay for the bill, it would raise taxes on investment fund managers, but at a lower level than legislation approved by the House.
An $80 billion jobs bill passed by the House last month would gradually increase taxes on investment fund mangers so that 75 percent would be taxed at higher ordinary income rates by 2013.
Fund managers in private equity, real estate and the venture capital industry now pay the current 15 percent capital gains rates on much of their profits, compared to the top 35 percent tax rate on ordinary income.
The Senate bill also would gradually increase taxes on investment fund managers' profits but only 65 percent of earnings would be taxed by 2013. Long-term investments pay tax on 55 percent of income.
The Senate bill, like the House version, would also raise $14.5 billion over 10 years by tightening tax rules on multinational companies, including clamping down on tax benefits for companies that keep funds offshore.
