Vote near in Senate showdown over economy

NEW YORK (CNNMoney.com) -- Amid growing fears that a recession is imminent, the Senate is poised for a showdown over politically contentious proposals intended to spur the economy.

The Senate is debating changes to a bipartisan bill that was brokered by the Bush administration and House leaders. It was approved overwhelmingly by the House late last month.

A vote could come as early as Wednesday afternoon.

The goal of the legislation is to stimulate the flagging economy by putting cash in the hands of consumers while giving businesses financial incentives to invest in plants and equipment and create jobs.

The House bill brought out an unusual display of cooperation between Republicans and Democrats. But the Senate debate, as many observers had predicted, has gotten heated. The front-running White House hopefuls - Democratic Sens. Hillary Clinton and Barack Obama and Republican Sen. John McCain - are all expected to cast votes.

Lawmakers vowed to get a bill passed and sent to President Bush for his signature by Feb. 15, after which it will take a few months for the IRS to mail out rebate checks to consumers.

The House bill, which President Bush pushed for in his State of the Union address last week, would cost about $150 billion and give one-time tax rebates to about 117 million taxpayers. It would also provide temporary tax breaks for businesses and contains two measures aimed at helping homeowners get or refinance mortgages.

Democrats led by Sen. Majority Leader Harry Reid, D-Nev., are pushing a plan worth roughly $200 billion that expands who would get relief. The Senate is debating smaller add-ons such as $1 billion in federal funds to help lower-income people pay their heating bills.

But at the core of the split between the Senate and House are several key questions. Among them: Should rebates be expanded to include senior citizens and disabled military veterans? Should Congress extend unemployment benefits? And should rebates go to more higher-income taxpayers?

Rebates for seniors and disabled vets. The Senate proposal expands the rebates offered in the House package to include 20 million seniors living on Social Security. Under the House plan, only tax filers with at least $3,000 of earned income would qualify.

The Senate proposal would also offer rebates to 250,000 disabled veterans who wouldn't qualify for them under the House plan.

Temporary extension of unemployment benefits. The Senate Finance Committee last week supported a bill offering at least an additional 13 weeks of unemployment benefits, a provision that was left out of the House bill and is opposed by many Republicans. However, the top Republican taxwriter, Finance Committee Member Charles Grassley, R-Iowa, said he would back extending benefits "to keep a bipartisan package together."

Many economists have come out in favor of the measure. Mark Zandi, chief economist of Moody's Economy.com, estimates that the economy would see a return of $1.64 for every dollar spent on unemployment benefits.

Others aren't so sure. Harvard economist Martin Feldstein, who heads the National Bureau of Economic Research, said evidence suggests that extending unemployment benefits tends to discourage people from taking a job.

Rebates for higher income households. The House bill imposes income caps on taxpayers eligible to receive rebates - $75,000 for individuals and $150,000 for married couples. The Senate Finance Committee bill includes income caps but at a higher level than those in the House bill. Under the Senate proposal, tax rebates would be phased out for individuals making more than $150,000 and for couples making more than $300,000.