UPDATE 1-U.S. Democrats skeptical on stimulus tax breaks

Thu Jan 8, 2009 11:40pm GMT

(Recasts with Democrats' comments after meeting)

By Jeremy Pelofsky and Richard Cowan

WASHINGTON Jan 8 (Reuters) - U.S. Senate Democrats on Thursday raised concerns that the economic stimulus plan the incoming Obama administration has outlined could fail in its central mission to create jobs, especially because of some of the tax cuts being proposed.

Some Democrats bluntly challenged whether President-elect Barack Obama's proposed tax cuts would be a waste of money and not stimulate the ailing economy, which has been in recession for 13 months and is expected to last through 2009.

Obama has proposed large investments in transportation and energy, and, in a bid to win over skeptical Republicans, outlined some $300 billion in tax credits for middle-class workers and businesses.

Senate Democrats met with advisers to President-elect Barack Obama including Lawrence Summers and are expected to meet again in a rare Sunday session to continue hashing out details of the recovery plan.

"They listened very carefully, I think they understand better the feeling here," said Sen. Kent Conrad, chairman of the Senate Budget Committee and a North Dakota Democrat.

"There is strong support for the need to do a bold economic recovery plan but that we've got to really focus on how to get the biggest bang for the buck and to make it fully effective," he said. "They clearly got the message. In fact, Mr. Summers summed up by saying, 'message received loud and clear.'"

The stimulus package could reach $775 billion or beyond and one Republican leadership aide said Democrats were considering $188 billion in tax cuts for individuals, $76 billion for businesses, and $10 billion in energy tax breaks.

Several Democrats questioned whether a $1,000 tax credit to middle-class families would have an impact or if companies would really hire new employees if given a $3,000 tax break.

But Senate Majority Leader Harry Reid and Senate Finance Committee Chairman Max Baucus both stressed that they were still in the early stages of developing the stimulus package, which Democrats hope to pass by mid-February.

"Summers understands that we have views on the issues and I think this is a work in progress, as it should be," Reid, a Nevada Democrat, told reporters after the meeting. "Some felt there was not enough here and too much there."

The Senate Finance Committee will likely begin crafting the legislation a couple days after the Jan. 20 presidential inauguration, Baucus said.

"Senators know that we have to act very quickly and have to act very effectively and efficiently," he told reporters. "No one expressed any significant opposition to moving ahead because of the cost."

The Congressional Budget Office projected a $1.2 trillion budget deficit for the 2009 fiscal year, causing some gasps on Capitol Hill, especially since that did not include the cost of the stimulus package.

Some Republicans, including Minority Leader Mitch McConnell of Kentucky, have pushed for cutting the 25 percent middle-class tax rate as a way to get money into the hands of Americans quickly.

Sen. Tom Harkin, an Iowa Democrat, left the meeting skeptical about how effective some of the Obama proposals would be.

"I'm a little concerned about the way Mr. Summers and others are going about this, in that to me it still looks a little bit like this trickle down, if we just put it in the top it's going to trickle down."

And, several Democrats expressed concerns that the stimulus plan shortchanged efforts to overhaul and bulk up the energy sector and said it would have to be boosted significantly.

"I think that what people are debating is the balance between the three parts of the package: tax cuts, state and local (governments) and infrastructure," Sen. Charles Schumer, a New York Democrat, told reporters.

"People really want more tax cuts in the energy area; I think that's pretty much universal," he said. (Editing by Leslie Adler)