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The chairman of the Senate Finance Committee proposed expanding a tax benefit for businesses that repurchase debt at a discount as the committee began debate on a roughly $272 billion package of tax changes aimed at spurring the economy.

The tax break for business debt was one of several last-minute revisions to the bill introduced Friday by Finance Committee Chairman Max Baucus, D-Mont. The panel is aiming to vote on the package Tuesday, with a vote by the full Senate possible by week's end.

The debt repurchase provision is more generous than what Baucus originally proposed, but it still falls short of what the U.S. Chamber of Commerce and companies including Dish Network Corp. (DISH), Lennar Corp. (LEN), Qwest Communications International Inc. (Q), and Tenet Healthcare Corp. (THC) had sought.

Those firms wanted a two-year suspension of taxes on income recognized because of canceled debt. Such income could arise as firms repurchase shares to shore up their balance sheets.

Instead, the revised Senate bill would allow them to spread recognition of that income over eight years. That is up from four years in the bill as introduced last week.

Sen. John Ensign, R-Nev., said that provision did not go far enough to help businesses restructure debt, and criticized the bill for not doing enough to address housing directly. "I believe this 'mark' has missed the mark," said Ensign.

The Senate bill cuts taxes for individuals and businesses by $272 billion over 10 years. On the individual side, the key provision is a $500 payroll tax credit proposed by President Barack Obama during last year's campaign.

The legislation may also undergo more changes as panel members sift through dozens of amendments during today's session. Sen. Charles Grassley, R-Iowa, the senior Republican on the panel, and Sen. Bob Menendez, D-N.J., each plan to offer amendments to shield most middle-income taxpayers from the effects of the alternative minimum tax in 2009. That would add around $70 billion to the bill's overall cost.

"We think that the provisions in this bill represent the best ways to address spending slowdowns and rising unemployment," Baucus said at the outset of the committee session.

In another last-minute revision, Baucus proposed extending the period for first-time home buyers to qualify for a tax break. Under last year's housing legislation, first-time home buyers that purchase homes before July 1, 2009 can qualify for a $7500 tax credit, which they must repay to the federal government over 15 years.

The latest version of Baucus' bill would extend eligibility for the credit to homes purchased before Sept. 1, 2009, and would waive the repayment requirement for homes purchased between Jan. 1 and Sept. 1, 2009.

The Senate bill would cut taxes for businesses by a total of $25 billion over 10 years. It would also spend $31 billion over 10 years for investment in renewable energy.

In addition to the tax provisions, the Senate bill includes some $86 billion in aid to states by increasing federal Medicaid payments.

The bill would spend $27 billion to help workers who are laid off retain COBRA health-insurance coverage. It includes $39 billion to extend and augment unemployment benefits and $4 billion for welfare and child support programs.

-By Martin Vaughan, Dow Jones Newswires; 202-862-9244; martin.vaughan@dowjones.com

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