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updated 6/15/2010 7:51:48 PM ET 2010-06-15T23:51:48

Long-term investors in some small businesses would escape capital gains taxes under a bill passed by the House Tuesday as congressional Democrats tried to revive their jobs agenda.

The bill would also increase tax deductions for startup expenses by new small businesses. The House passed the bill on a mostly party-line vote of 247 to 170.

House Democrats plan to merge the bill with legislation creating a $30 billion fund for community banks to increase lending to small businesses. The House could vote on the lending bill as early as Wednesday, sending the entire package to the Senate.

Congressional Democrats started the year with an aggressive agenda of passing a series of bills designed to create jobs. Many of the proposals stalled as lawmakers, after hearing from angry voters, became wary of adding to the federal budget deficit.

The tax provisions passed Tuesday were included in a bill that passed the House in March but stalled in the Senate. House Democrats hope the new package will fare better, boosting investment and lending for small businesses struggling to recover from the nation's worst recession in decades.

"This is a continuation of our work to spur job creation and to really improve the quality of life in all of our communities," said Rep. Sander Levin, D-Mich., chairman of the House Ways and Means Committee.

Rep. Dave Camp of Michigan, the top Republican on the committee, said the bill falls short. "While the tax relief in here is welcome, it's not enough," Camp said.

The tax package would provide about $3.6 billion in tax breaks over the next decade. The bill includes tax increases that would offset the tax cuts and pay for the lending bill, so nothing would be added to the budget deficit.

The break on capital gains taxes would be limited to stock held for at least five years in small businesses organized as C corporations, a tax designation often used by large, publicly traded companies. Investments in most small businesses would not qualify for the break.

The tax increases include one that would raise $5.3 billion over the next decade by limiting taxpayers' ability to avoid gift taxes by setting up trusts known as grantor retained annuity trusts. Another provision would raise $1.8 billion by prohibiting paper companies from claiming a biofuel tax credit for producing fuel from a byproduct in the papermaking process called "crude tall oil."

The lending bill would authorize a fund of up to $30 billion that would be available to financial institutions with no more than $10 billion in assets. Banks that tap the fund would issue preferred stock to the Treasury Department. The stock would have to be redeemed within 10 years.

Republicans tried to derail the tax bill by adding an unrelated amendment that would have repealed a major provision of the new health care law. The amendment, sponsored by Camp, would have repealed the requirement that most individuals get health insurance. The amendment failed by a vote of 187 to 230.

Copyright 2010 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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