$85-billion jobs bill slashed

The Senate’s top leader on Thursday abruptly scaled back the size of a job-creation bill from $85 billion to $15 billion, fearing that even with emerging bipartisan support the larger bill could be undercut by costly special-interest provisions that would have little effect on unemployment.

Senate Majority Leader Harry Reid (D-Nev.) said his stripped-down proposal would be the first in a series of job-related measures. His decision came as a surprise, since only hours earlier the $85-billion job bill was presented by Senate Finance Committee leaders with pledges of bipartisan support and praise from the White House.

Reid’s decision reflected a desire to move as quickly as possible with four provisions that would have the most direct effect on job creation. Those provisions are payroll tax breaks for hiring unemployed workers, expanded tax breaks for small businesses, a one-year extension of federal highway construction funding, and federal subsidies for state and local government infrastructure bonds.

He jettisoned -- at least for now -- a host of unrelated provisions such as disaster relief for Arkansas and Mississippi, an extension of the Patriot Act, a delay in a cut in Medicare payments to doctors and an extension of some recently expired business tax credits.

Several of those features, particularly the business tax credits, were important to winning support from senior Finance Committee Republicans including Sen. Orrin G. Hatch (R-Utah). Hatch did not react favorably to Reid’s shift.

“Sen. Hatch is deeply disappointed that the majority leader has abandoned a genuine bipartisan compromise only hours after it was unveiled in favor of business-as-usual, partisan gamesmanship,” said Antonia Ferrier, a Hatch spokeswoman.

Sen. Charles E. Grassley (R-Iowa), another architect of the bipartisan bill, also was incensed.

“The majority leader pulled the rug out from work to build broad-based support for tax relief and other efforts to help the private sector recover from the economic crisis,” said Jill Kozeny, Grassley’s spokeswoman.

Reid’s change in strategy on a bill President Obama and many members of Congress consider the nation’s most pressing issue underscored the growing political sensitivity to Congress’ tendency to lace must-pass legislation with unrelated provisions. That has been a particularly sore point in the Senate’s handling of the healthcare bill, which has drawn fire for including parochial provisions to sway individual senators.

In describing the scaled-down jobs bill to reporters Thursday, Reid bristled at published suggestions that some provisions of the broader bill -- such as the proposal to delay a cut in Medicare payments to doctors -- were written by lobbyists for special interests.

“No one’s written what we’re going to bring up downtown,” he snapped.

“We feel that the American people need a message,” Reid said. “The message that they need is that we’re doing something about jobs. . . . The message is so watered down, with people wanting other things in this big package.”

But even provisions of the stripped-down version have critics. Some Democrats believe that the job-creation tax credit is not the best way to reduce unemployment, arguing that direct lending to small businesses or spending on infrastructure would do more to expand the workforce.

“Our experience is that tax credits only go to people who make money -- and then they keep it,” said Sen. Dianne Feinstein (D-Calif.).

Action on the legislation is not expected for more than a week because Congress has been snowbound this week and is on recess next week. Reid promised quick action on the $15-billion bill as soon as Congress reconvenes.

The Senate will also have to move quickly to extend jobless benefits, which for many of the long-term unemployed will run out Feb. 28. The extension was part of the larger bill but was not included in Reid’s smaller version. A key question is whether the abrupt change in strategy will jeopardize GOP support.

The urgency of the job issue was underscored by a report issued Thursday by President Obama’s Council of Economic Advisors.

With the economy continuing to recover only slowly, unemployment is likely to remain at or near double digits for the rest of the year, the council said in the annual report to Congress.

“Indeed, it is possible that the rate will rise for a while as some discouraged workers return to the labor force before starting to generally decline,” the report says.

As a result, the millions of jobs lost during the last two years are not likely to be replaced before 2013 and it will probably not be until 2016 that the unemployment rate falls to the 5.5% level that economists consider full employment, the report says.

Grim as the jobs forecast was, the council credited massive government intervention -- some of it begun under George W. Bush -- with averting a far bigger catastrophe.

“One thing we have to keep in mind is how much worse things were a year ago,” said Christina Romer, council chairwoman.

When Obama took office, “the American economy was truly in free fall,” Romer said. The nation’s gross domestic product -- the total value of all goods and services -- was falling at an annual rate of more than 6%, she noted, and jobs were disappearing at the rate of almost 800,000 per month.

“Now we’re at a point where unemployment is largely stable,” she said. “We even saw the number tick down in January.”

The report said the recession stemmed in part from structural flaws in the way the economy was functioning before the crash, particularly the heavy reliance on consumer spending and credit, and low levels of personal saving.

cparsons@tribune.com

janet.hook@latimes.com