Obama's negotiating team insisted on restoring some lost funding for school construction projects as talks began Tuesday in hopes of striking a quick agreement, but by late in the day it appeared resigned to losing up to $40 billion in aid to state governments.
Earlier Tuesday, the Senate sailed to approval of its $838 billion economic stimulus bill, but with only three moderate Republicans signing on and then demanding the bill's cost go down when the final version emerges from negotiations.
Negotiators were working with a target of about $800 billion for the final bill, lawmakers said.
"That's in the ballpark," Senate Finance Committee Chairman Max Baucus, D-Mont., said of the $800 billion figure late Tuesday.
Baucus had said earlier that $35.5 billion to provide a $15,000 homebuyer tax credit, approved in the Senate last week, would be cut back. There was also pressure to reduce a Senate-passed tax break for new car buyers, according to Democratic officials.
Within hours of the 61-37 Senate vote, White House Chief of Staff Rahm Emanuel and other top Obama aides met in the Capitol with Democratic leaders as well as moderate senators from both parties whose support looms as crucial for any eventual agreement.
House Democratic leaders promised to fight to restore some of $16 billion for school construction cut by the Senate. Those funds could create more than 100,000 jobs, according to Will Straw, an economist at the liberal Center for American Progress.
The moderate senators — Olympia Snowe and Susan Collins of Maine and Arlen Specter of Pennsylvania — are demanding that the final House-Senate compromise resemble the Senate measure, which devotes about 42 percent of its $838 billion in debt-financed costs to tax cuts, including Obama's signature $500 tax credit for 95 percent of workers, with $1,000 going to couples.
The $820 billion House measure is about one-third tax cuts.
Collins said last week she won't vote for any final bill exceeding $800 billion in spending and tax cuts. Specter warned that the Senate bill must stay "virtually intact."
The GOP moderates also want the final bill to retain a $70 billion Senate plan to patch the alternative minimum tax, or AMT, for one year. The provision would make sure 24 million families won't get socked with unexpected tax bills during the 2010 filing season.
The AMT was designed 40 years ago to make sure wealthy people pay at least some tax, but it is updated for inflation each year to avoid tax increases averaging $2,300 a year. Fixing the annual problems now allows lawmakers to avoid difficult battles down the road, but economists say the move won't do much to lift the economy.
House leaders are tempering expectations that they'll restore many of the cuts.
"You cannot allow the perfect to be the enemy of the effective and of the necessary, and we will not," said House Speaker Nancy Pelosi, D-Calif.
While they're fighting to preserve cuts to Obama priorities, Specter is fighting to preserve an enormous $10 billion increase for the National Institutes of Health, while Collins obtained $870 million for community health centers in talks last week.