Senate Approves Aid Package to States

Thursday, August 5, 2010 -WSJ.com
By COREY BOLES
WASHINGTON—The Senate voted Thursday to approve a package of $26 billion in aid for state and local governments, funded partly by an $11 billion tax increase on U.S. multinational corporations.
In what was one of the final moves by the Senate before lawmakers depart Washington for the summer recess, Democrats were able to score a significant victory for a core constituency of their party: labor unions and public-sector workers.
But at the same time, they handed a hefty tax bill to U.S. companies with units overseas that have been able to pay a lower corporate income tax rate on profits derived from their foreign businesses.
The Senate voted 61-39 to approve the measure, with just two Republicans joining with every single Democrat to vote in favor of the legislation.
House Democratic leadership indicated Wednesday they plan to bring back lawmakers in that chamber to give final approval to the legislation, likely Aug. 10.
The House began its six-week recess at the end of last week. It is rare for lawmakers to return to Washington in the midst of a recess.
For Democrats, whose various efforts to boost job creation have been largely stymied by Republicans in the Senate, the vote will provide ammunition for campaigning during the break.
The legislation would provide $16 billion in aid to help states pay rising Medicaid costs.
Current federal funding for the expansion of the program, which provides health care for the poor, expires at year end. Democrats are seeking to continue the funding through the first six months of 2011.
Hospital stocks have been rising in anticipation of the final vote but were down slightly in recent trading amid a broader market downturn.
Robert W. Baird analyst Whit Mayo said Wednesday that despite the recent rally, he sees more upside, adding the group could rally another 10% or so higher in the next few days.
The bill would steer a further $10 billion to local governments to help them avert layoffs of teachers and other public-sector workers like firemen and police officers.
Democrats said the legislation would enable state and local governments to avert layoffs or create 290,000 public-sector jobs this fall.
The legislation's full $26 billion cost is offset by tax increases or spending cuts elsewhere in the federal budget. This was what allowed Democrats to break the logjam and win enough Republican support to pass the legislation.
The majority of Republicans were critical of the legislation, arguing it was handing U.S. corporations—which they say are proven job creators—another reason to move more of their operations to other countries. At the same time, they said, it was essentially rewarding traditional Democratic supporters at the expense of large firms.