WASHINGTON (Reuters) - The Senate on Monday will decide whether to send billions of dollars to states to help cover steep healthcare costs, a plan paid for by closing tax loopholes enjoyed by big multinational companies.
Chances looked slim late on Monday for passage of the plan, which would provide states with $16.1 billion through June for Medicaid and also give them $10 billion to avert teacher layoffs.
States fear that their hopes for budget help will be dashed if the Senate votes down the bill. The proposal will likely add about $5 billion to the federal budget deficit over 10 years, which adds to potential opposition to the legislation.
Several spending bills have stalled in Congress this year because of deficit concerns -- of Republicans and some fiscally-conservative Democrats -- about the widening federal deficit.
The $862 billion federal stimulus plan increased the amount of money the federal government sent to states for Medicaid, the healthcare program for the poor that accounts for 20 percent of most states' budgets. The funds allowed the states to continue spending in other areas, but they run out in December and states are rushing to find replacement money in the midst of a record collapse in revenue.
More than half of the states counted on an extension when drafting their budgets for fiscal 2011, which for most started last month, and were stunned when a previous continuation measure stalled in the Senate this summer. The House has already approved the funds.
The bill also includes $10 billion for education jobs, to stave off thousands of layoffs that cities and counties say they will have to make.
But states are nervous that those funds will be approved, said National Governors Association Executive Raymond Scheppach.
The legislation requires states to maintain education funding at the same level as 2008. Then the recession had hit few state budgets and they spent more money on schools than they can now afford, he said.
States are dreading the next few months, with forecasts that their total budget gaps could reach $120 billion or more this fiscal year.
"There's not much else out there," Scheppach said, referring to other avenues of federal assistance.
INTERNATIONAL TAX RULES
The new state funds would be partly paid for by tightening tax rules related to how multinational companies allocate income between domestic and foreign subsidiaries.
Democrats have sought several times this year to raise about $10 billion over a decade by closing what they call loopholes that allow companies to allocate income to low-tax countries to avoid U.S. tax.
One such tax change would make it harder for companies to hold income offshore but take the benefit of foreign tax credits to reduce U.S. taxes.
Several of these measures included in President Obama's 2011 budget have passed the House of Representatives and are likely to be revisited because of the budget crunch, according to Anne Mathias, an investor adviser at Concept Capital.
"The foreign tax items included as pay-fors are hard to defend, because they look like financial engineering," Mathias said. Even if the vote fails this time, "it's another example of their willingness to use these" loophole measures.
Pharmaceutical companies in particular have been cited as users of such tax structures.
(Editing by Dan Grebler)
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