By Richard Rubin, CQ Staff

As they try to speed an economic stimulus bill through Congress, Democrats are torn over a divisive tax policy question: Should the rich get rebates, too?

Senate Finance Chairman Max Baucus , D-Mont., thinks they should, and he is preparing to move a bill to the Senate floor that would give $500 to nearly every American, regardless of income.

That provision is part of a $161.3 billion package composed of payments to individuals and tax incentives for businesses that the Senate panel will mark up Wednesday afternoon. The bill is expected to reach the Senate floor this week.

But Baucus’ rebate proposal, which added about $5 billion to the bill’s cost, has prompted a fierce response in his own caucus. Now, his bid to win Republican votes for the package is complicating lawmakers’ final agreement on a plan to prop up the economy.

Byron L. Dorgan , D-N.D., Tuesday called Baucus’ idea “absurd.”

“That’s as if common sense has left the building,” he said.

Majority Leader Harry Reid , D-Nev., promised to add income caps to the bill if it reaches the Senate floor without them. “[It] causes me to want to gag,” Reid said. “I don’t think Warren Buffett should have a rebate.”

House Democrats were equally critical of Baucus’ proposal. Lawmakers in that chamber overwhelmingly passed, 385-35, a version of the package on Tuesday.

The House bill includes income caps, and that chamber’s $600 per-person checks for most taxpayers would begin phasing out for individuals earning more than $75,000 annually and married couples making more than $150,000.

An analysis by the Joint Committee on Taxation said the House plan would send $50 million to people with children earning more than $200,000. Childless couples earning more than $174,000 a year would not receive any payment under the House plan.

“I hope what the Senate does will be respectful of [the] focus we have of middle-income and lower-income people,” said Speaker Nancy Pelosi , D-Calif., who added later that the Senate approach should be “disciplined, focused and fiscally responsible.”

Pelosi, House Minority Leader John A. Boehner , R-Ohio, and Senate Minority Leader Mitch McConnell , R-Ky., urged the Senate to accept the House bill. In his State of the Union speech, President Bush also warned against making changes to the bill that had been a compromise between House leaders and the White House.

“This is not a time to get into some kind of a testing of wills between the two congressional bodies,” McConnell said.

But Baucus, Reid and other senators say they do not want to be forced to accept the House bill. “The Senate is going to have a say on stimulus,” Baucus said. “Senators want to have their say.”

Still, it was unclear late Tuesday whether Baucus was planning to alter his proposal because of the Democratic concerns.

Charles E. Grassley of Iowa, the Finance Committee’s ranking Republican, met with Baucus for more than an hour Tuesday evening in Baucus’ office. As he left, Grassley declined to comment about the stimulus.

Besides the income caps, Baucus’ measure also makes several other changes to the House package. It would expand rebates to low-income seniors, add help for businesses that had losses in 2006 and 2007, include an extension of unemployment benefits and increase the rebates for low-income individuals while shrinking rebates from $600 to $500 for most people.

Attracting GOP Support

The proposed removal of the income caps drew the most attention Tuesday, as Democrats attacked that idea on economic and political grounds. “It certainly deflates the argument that we’ve been making, that wealthy people who receive rebates put it in the bank,” said Rep. Richard E. Neal , D-Mass., a Ways and Means Committee member.

Still, it’s clear that eliminating the income caps helped Baucus to attract necessary GOP support. The vote count on the Senate floor and in the committee could become muddled if he removes them.

Senate Finance member Pat Roberts , R-Kan., said he was willing to accept unemployment insurance in exchange for lifting the income caps. Roberts said many families above the House’s limits have immediate needs, too. “If you give it to everyone, everyone is going to be in a position to spend more money,” he said.

The Senate and House bills are similar in many ways. Both offer “bonus depreciation” to companies for investments made in 2008, though the House proposal front-loads more of the benefit in 2008. Both give small businesses more leeway to deduct the full cost of equipment purchases.

Other senators have suggested additional changes, such as more-generous food stamp payments, help for small businesses, money for road resurfacing, foreclosure counseling, energy tax breaks, low-income heating assistance and aid to states.

At last count, 15 Democrat-sponsored proposals were being floated to Senate leaders and the Finance Committee. Nevertheless, lawmakers warned against bogging down the measure.

“We should not make this a Christmas tree,” said Sen. Blanche Lincoln , D-Ark., though she touts rebates for veterans.

Democratic economists said Tuesday that while the House stimulus package could be improved by adding funding for food stamps and extending unemployment insurance, it was not worth doing if that would delay enactment of the legislation.

“There is no possible improvement to the package that would warrant delay,” said former Treasury Secretary Lawrence H. Summers.

The House measure would increase the size of mortgage loans that the Federal Housing Administration could insure and that Fannie Mae and Freddie Mac could purchase. Any housing-related measures may be added on the Senate floor if they fall outside the Finance Committee’s jurisdiction.

Libby George, Catharine Richert, Greg Vadala, Benton Ives, Edward Epstein and David Clarke contributed to this story.