Price tag for stimulus rises to $850B

January 15, 2009 at 12:00a.m.

WASHINGTON (AP) — President-elect Barack Obama’s economic recovery bill has grown to $850 billion after negotiations with his Democratic allies in Congress, who have rewritten some of the president-elect’s tax proposals and may drive the price tag even higher.

For starters, Capitol Hill Democrats are trying to use the economic recovery bill to extend a tax cut for middle- to upper-income taxpayers despite concerns from Obama’s transition team that it won’t boost the economy.

Rep. Charles Rangel, D-N.Y., chairman of the tax-writing House Ways and Means Committee, said lawmakers in both the House and Senate feel strongly about using Obama’s stimulus package to make the annual fix to the alternative minimum tax to prevent more than 20 million additional tax filers from having to pay it.

Making that fix for one year alone would cost about $70 billion, a healthy chunk out of the approximately $300 billion that Obama has set aside for tax cuts in the soon-to-emerge $850 billion stimulus plan.

A $3,000 job-creation tax credit, which drew strong objections as unworkable, appears likely to be jettisoned from the Obama plan, Rangel said.

Also threatened is a pro-business provision proposed by Obama that would allow companies posting losses last year to get refunds for taxes paid as far back as five years earlier.

The AMT was designed in 1969 to make sure wealthy taxpayers pay at least some tax. But it never was indexed for inflation and therefore threatens to trap millions of people for whom it was never designed.

The House and Senate often have wrangled over how to pay for fixing the AMT — whether to use other tax revenues to cover the cost or to add the cost to the budget deficit.

One of the factors that seems to be driving House members’ desire to add the AMT patch to the economic recovery bill is to not have to follow through on promises to pay for it with painful tax increases. The economic recovery bill won’t be subject to rules requiring that tax cuts be offset by other revenue increases.

At the same time, work continued throughout the Capitol on other pieces of the recovery package in hopes of unveiling the bill to lawmakers and the public as early as today.

The Obama plan originally was plotted to cost $725 billion to $775 billion, most of which would reach the economy over the next three years. Now, aides involved in ongoing talks said, the measure would cost about $850 billion, with tax cuts in the range of $300 billion to $325 billion.

The largest components include $85 billion to $90 billion for cash-strapped states to help pay for the Medicaid health care program for the poor and disabled. Another $80 billion or so would go into a block grant to states for education, which Sen. Charles Schumer, D-N.Y., said would prevent cutbacks in school programs, layoffs and property tax increases.

There’s also about $25 billion to pay for subsidies to help laid-off workers hold onto their health insurance, $35 billion to extend unemployment benefits and a 15 percent increase in food stamp benefits costing $20 billion.