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Unemployment Benefits Extension Held Up by Corporate Tax Fight

June 11, 2010 - by Donny Shaw

It has now been a full two weeks since Congress left for recess without finalizing their bill to extend unemployment benefits, and there is still no end in sight for the bill. As a result, hundreds of thousands of unemployed Americans have been suddenly cut-off from their only source of income. Most lawmakers from both parties agree that unemployment benefits need to be extended, so what’s holding up the bill?

The problem is that the unemployment benefits are attached to a “tax extenders” package containing dozens of unrelated tax breaks for industries, some designed to spur job creation and some that look outright porky. It contains stuff like a $6 billion research and development tax credit, an $868 million tax credit for biodiesel manufacturers, a $46 million credit for Hollywood filmmakers, a $131 million credit for Puerto Rican rum distillers and much more along these lines. You can download a full summary from the House Ways and Means Committee.

As Ryan Grim and Shahien Nasiripour at Huffington Post reported recently, these kinds of tax extender grab-bag bills generally pass through Congress easily. “Extending the tax-breaks each year keeps them off the long-term books,” they write. “And because most of the credits expire each year, lobbyists can argue to their business clients that their services need to be kept on retainer at all times. And members of Congress win because the lobbyists continuously shower them with corporate money.”

But this time around, with anxiety about the federal deficit running high and a very contentious mid-term season quickly approaching, the extenders bill is running into problems. In order to lessen the bills impact on the deficit, the Democrats have included a number of corporate tax increases and tax-loophole closers in the bill, and the battle now is between different industries and the lawmakers who represent them.

When the bill was forwarded to the Senate from the House on May 28, it included a tough provision to raise taxes on hedge fund managers, who for years have been using a loophole in the tax code to pay lower income-tax rates than what their secretaries pay. But the hedge fund industry has been lobbying Democrats extremely hard for the past few years against this tax increase, and earlier this week, Senate Dems caved in and softened the provisions substantially. To make up for that loss in revenues, they proposed to instead raise the amount of the tax oil companies pay are required to pay, per barrel, into the oil spill liability fund. The oil company tax hike has all Republicans objecting. The oil industry has traditionally given far more in campaign donations to the Republicans.

The unemployment benefits extension part of the bill is designated as emergency spending and is not paid for with new revenue. This whole convoluted web of industries fighting for and against tax provisions is, in some sense, completely separate from the unemployment issue. But they are linked together in order to save time — the Republicans have repeatedly used unemployment extensions to stall Senate action — and to make it possible to call the tax extenders bill a stimulus measure — unemployment benefits are the most stimulative form of government spending.

The Senate will take up the bill again on Monday, but there is still no clear path forward for how to actually wrap it up. The Republicans can (and undoubtedly will) filibuster the bill and require 60 votes for it to pass. That means that the Democrats will need all 59 of their members plus at least one Republican “yes” vote. Right now, there is no Republican support. Even if the Senate does manage to pass the bill somehow, it will have to go back to the House once again for voting. When they passed the bill in May, they did so without a single vote to spare, and it’s unclear how the changes made to the bill by the Senate will affect support for it in the House.

Meanwhile, more unemployed people lose their unemployment insurance benefits each day. According to the National Employment Law Project, the number of people losing benefits because of congressional inaction will be up to 1.2 million by mid June.

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