Tags: Senate | States | Funding | reid

Senate Kills $26.1 Billion Plan to Help Struggling States

Tuesday, 03 Aug 2010 07:07 AM

The U.S. Senate on Monday killed a plan to send $26.1 billion dollars to states due to deficit concerns, marking a setback for those counting on federal help with budget gaps.

The plan would have been paid for by closing tax loopholes enjoyed by big multinational companies.

The U.S. Senate will likely consider a revised version in coming days.

The plan, which would have provided states with $16.1 billion through June for Medicaid and also give them $10 billion to avert teacher layoffs, went down in defeat because it would have added $5 billion to the deficit.

Senate Majority Leader Harry Reid said that when he introduced the legislation he had anticipated it would be deficit neutral. Upon learning it would put the country deeper into debt he began drafting a new version, he told the Senate.

"That amendment will fund hundreds of thousands of jobs and will be fully paid for according to CBO," he said.

The Congressional Budget Office estimates the costs of legislation.

State budget deficits could total more than $120 billion this fiscal year. Pennsylvania State Senate Majority Leader Dominic Pileggi told reporters a vote on the new legislation could happen as early as Wednesday, and that his state would put off implementing its budget contingency plan.

Several spending bills have stalled in Congress this year because of deficit concerns — of Republicans and some fiscally-conservative Democrats — about the widening federal deficit.

Last year's $862 billion federal stimulus plan increased the amount of money the federal government sent to states for Medicaid, the healthcare program for the poor that accounts for 20 percent of most states' budgets. The funds allowed the states to continue spending in other areas, but they run out in December and states are rushing to find replacement money in the midst of a record collapse in revenue.

More than half of the states counted on an extension when drafting their budgets for fiscal 2011, which for most started last month. They were stunned when a previous continuation measure stalled in the Senate this summer. The House has already approved the funds.

The bill also included $10 billion for education jobs, to stave off thousands of layoffs that cities and counties say they will have to make.

But states were not pressing for those funds to be approved, said National Governors Association Executive Raymond Scheppach.

The legislation would have required states to maintain education funding at the same level as 2008. At that time, the recession had hit few state budgets and they spent more money on schools than they can now afford, he said.

The states consider extra Medicaid money a great help because the funds can reach them quickly.

"There's not much else out there," Scheppach said about other avenues of federal assistance.

The new state funds would have partly been paid for by tightening tax rules related to how multinational companies allocate income between domestic and foreign subsidiaries.

Democrats have sought several times this year to raise about $10 billion over a decade by closing what they call loopholes that allow companies to allocate income to low-tax countries to avoid U.S. tax.

One such tax change would make it harder for companies to hold income offshore but take the benefit of foreign tax credits to reduce U.S. taxes.

Several of these measures included in President Obama's 2011 budget have passed the House of Representatives and are likely to be revisited because of the budget crunch, according to Anne Mathias, an investor adviser at Concept Capital.

"The foreign tax items included as pay-fors are hard to defend, because they look like financial engineering," Mathias said.

Pharmaceutical companies in particular have been cited as users of such tax structures.

The Senate leaves next week for its month-long summer break.

© 2017 Thomson/Reuters. All rights reserved.

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The U.S. Senate on Monday killed a plan to send $26.1 billion dollars to states due to deficit concerns, marking a setback for those counting on federal help with budget gaps. The plan would have been paid for by closing tax loopholes enjoyed by big multinational...
Senate,States,Funding,reid
626
2010-07-03
 

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