The $26 Billion bailout
Aug-12-2010

President Barack Obama signed into law a $26 billion plan that Democrats say is designed to help cash-strapped state governments preserve the jobs of thousands of teachers, police and firefighters.

Obama put his signature on the measure about two hours after the U.S. House approved the legislation 247-161 yesterday. The lawmakers returned to Washington for one day to act on the bill amid fears the U.S. economy is stalling before November's midterm elections. They headed back to the campaign trail after sending the plan to the president.

"We can't stand by and do nothing while pink slips are given to the men and women who educate our children or keep our communities safe," Obama said earlier yesterday in a White House Rose Garden appearance. He said the measure won't add to the deficit.

The bill cleared the Senate last week after two Republicans joined Democrats in breaking a filibuster.

Representatives Mike Castle of Delaware, who is running for the Senate, and Joseph Cao of New Orleans were the only Republicans to support the bill in the House. Three Democrats opposed the plan. Twenty-five lawmakers didn't vote.

The bill became the latest flashpoint in an election-year debate over jobs, the economy and the deficit. Republicans, who have attacked federal spending as one of their top campaign issues, called the legislation a costly bailout of government employees, a key Democratic constituency. Democrats, who have struggled to realize their jobs agenda, said the bill would keep teachers in the classroom and police on the beat while still cutting the deficit.

'Emergency Session'

"We are here today because the speaker of the House has declared this an emergency session," said Representative Jeb Hensarling, a Texas Republican. "There is a national emergency: Apparently Congress has not spent enough money."

He added, "The American people are asking, 'What part of broke doesn't this Congress understand?'"

Barney Frank, a Massachusetts Democrat, said Republicans opposed the measure for political gain. "The Republicans have a two-step strategy: First of all, obstruct anything from getting better and then point out that things aren't getting any better," he said.

The bill is intended to help fill state budget gaps totaling $84 billion, according to the National Conference of State Legislatures, triggered primarily by weak sales and declining income-tax revenue.

Balancing Budgets

Unlike the federal government, every state except Vermont is required to balance its budget, forcing spending cuts, tax increases or both -- actions that Federal Reserve Chairman Ben S. Bernanke said last week are contributing to the nation's sluggish recovery.

State and local governments shed 48,000 jobs last month, bringing this year's losses to about 170,000, according to the Labor Department. The bill would provide $16 billion to help cover states' Medicaid bills plus $10 billion for teachers.

Economist Mark Zandi, a former adviser to 2008 Republican presidential candidate John McCain, called the legislation "a very good idea," estimating it would save 150,000 jobs. It won't save thousands more people from receiving pink slips, said Zandi, who estimated states will still have to cut another quarter-million jobs to make their budget numbers work.

"Even with the $26 billion, they are going to be cutting into real bone," he said.

Corporate Tax Increase

The bill would be financed in part by a $10 billion tax increase on multinational corporations, which split lawmakers along party lines. Democrats said they are cracking down on the abuse of foreign tax credits intended to ensure companies aren't taxed by both the U.S. Treasury and foreign governments on earnings abroad. Republicans, along with trade groups such as the U.S. Chamber of Commerce and the Business Roundtable, called the tax increase a jobs killer.

The measure would rescind funding for a renewable energy loan program and cut food stamps by $12 billion beginning in 2014, clauses that House Speaker Nancy Pelosi said she doesn't support and which lawmakers may revisit later.

"I hope we can make that up in another way," Pelosi said.

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