Republicans block Senate economic stimulus plan

WASHINGTON (Reuters) - Senate Republicans on Wednesday narrowly blocked a Democratic-backed economic stimulus plan that was costlier than a House of Representatives-passed measure by extending cash rebates to retirees and disabled veterans and stretching out unemployment benefits.

The Senate legislation, valued at about $158 billion, and aimed at averting a U.S. recession, was offered as an alternative to the bill backed by President George W. Bush that overwhelmingly passed the House last week. The $146 billion House measure would give individuals a one-time $600 payment and couples $1,200, plus $300 per child.

The Senate Democratic version would have provided payments of $500 to individuals and $1,000 for couples, plus $300 per child, but with higher income caps. The goal is to give consumers money so they can spend it quickly and give the ailing U.S. economy a lift.

The bill further broadened the benefits by allowing cash payments to an estimated 250,000 disabled veterans and 20 million senior citizens who get government benefit checks but have little or no earned income.

It was not immediately clear what the sharply divided Senate would do next.

"Senator (Harry) Reid is going to give Republicans a chance to reconsider their vote against efforts to strengthen the economy by helping those who need it most," said Jim Manley, a spokesman for the Senate majority leader.

Backers fell one vote short of the 60 needed in the 100-member chamber to limit debate, although the final count was 58-41 when Reid switched to no in a procedural move that allows him to bring up the bill again.

Sens. Hillary Clinton of New York and Barack Obama of Illinois, who are battling for the Democratic presidential nomination, interrupted their campaigns and returned to Washington to cast votes in favor of the measure.

Republican Sen. John McCain of Arizona, his party's front-runner for the presidential nomination, did not vote or return to the Senate for the showdown.

'BETTER WAY TO GO'

Before the vote, Reid, a Nevada Democrat, said the stimulus package was "smart, it's targeted and it's effective" and it had "lots of support from lots of different organizations."

Senate Republican leader Mitch McConnell of Kentucky, favoring a smaller alternative, countered, "There is a better way to go."

Treasury Secretary Henry Paulson, testifying before the Senate Budget Committee, urged senators to keep the stimulus bill focused on simple tax rebates. In remarks that angered Reid, Paulson also complained he was concerned that "special interests are coming to the trough."

Most Senate Republicans opposed the expansion of jobless benefits, although many favor adding to the House package cash payments to senior citizens and disabled veterans.

Senate Finance Committee Chairman Max Baucus, a Montana Democrat, said he was "quite confident we'll get this resolved quickly."

Senate Democrats were pushing a package with an estimated cost of $158.1 billion this year. That includes $157 billion in tax rebates, business incentives and other provisions approved by the Senate Finance Committee, plus about $1 billion to help low-income families pay their heating bills.

Lawmakers aim to finish work on the election-year plan to boost the economy by mid-February. Proposals being discussed would give businesses more incentives to invest and expand.

The final bill also might allow the Federal Housing Administration, as well as housing finance giants Fannie Mae and Freddie Mac, to back larger loans.