Senate revises rescue plan, will vote on bailout tonight

WASHINGTON — In a bid to revive President Bush's $700 billion financial-rescue plan, Senate leaders scheduled a vote for tonight on a version of the bill that adds substantial tax cuts meant to appeal to Republicans when it reaches the House.

The goal is to net at least 12 more House votes than the rescue proposal received Monday, when lawmakers rocked the political and financial worlds by rejecting it.

The gamble is certain to anger some conservative House Democrats, who object to tax cuts that are not offset with spending cuts. But Senate strategists calculated it will gain more House votes than it will lose.

If so, Congress would be poised to pass landmark legislation giving the government billions of dollars to buy deeply discounted mortgage-backed securities that are choking off credit and roiling the markets.

Sen. Chris Dodd, D-Conn., chairman of the Senate banking committee, said the Senate decided to move quickly, citing signs from some House members that they regretted their initial vote after the markets plunged in response. "I think their will is coming back, having heard from their constituents," he said.

The strategy is risky because some House members might see it as a highhanded move by senators. Senate passage of a bailout measure has seemed assured all along.

Sen. Charles Schumer, D-N.Y., called it "a brilliant move" that will "help pick up votes on both sides of the aisle."

House Speaker Nancy Pelosi's reaction was cooler. "The Senate has made a decision about how to proceed and what can pass that body," the California Democrat said. "The Senate will vote tomorrow night, and the Congress will work its will."

On the morning after the sell-off on Wall Street, congressional offices reported a shift in angry calls from constituents, with some now demanding that lawmakers take some corrective action, a change from the outpouring of public opposition that contributed to the defeat of the plan.

"I started hearing from a lot of people who lost money on their investments, thanks to the big drop on Wall Street yesterday," said Rep. Steven LaTourette, R-Ohio, who voted against the plan.

As they explored ways to tinker with the proposal in consultation with the Bush administration, all sides agreed any revisions would not change the underlying concept of granting the Treasury Department access to up to $700 billion to purchase — and eventually resell — troubled securities that were clogging the financial system.

The new approach, announced Tuesday night by Senate Majority Leader Harry Reid, D-Nev., and Minority Leader Mitch McConnell, R-Ky., would tack large and contentious tax measures to the bailout bill. Senate leaders figure the House will have to approve it because the tax cuts are too appealing to Republicans and the financial-rescue plan will still seem essential to most Democrats.

House leaders earlier were considering the smallest possible tweaks to the bill in hopes of picking up 12 votes.

The Senate bill would raise federal deposit-insurance limits to $250,000 from $100,000, as called for by presidential nominees Sens. Barack Obama and John McCain only hours earlier.

House Minority Leader John Boehner, R-Ohio, praised that proposal, and many Democrats signaled approval.

McCain, Obama and Sen. Joseph Biden of Delaware, Obama's running mate, signaled plans to return to Washington for the vote.

The Senate measure will graft the bailout language to a tax bill it approved last week, on a 93-2 vote. It includes: a provision to prevent more than 20 million middle-class taxpayers from feeling the bite of the alternative minimum tax (AMT); $8 billion in tax relief for those hit by natural disasters in the Midwest, Texas and Louisiana; and some $78 billion in renewable-energy incentives and extensions of expiring tax breaks.

In a compromise worked out with Republicans, the bill does not pay for the AMT and disaster provisions but does have revenue offsets for part of the energy and extension measures.

That wasn't enough earlier for the House, which insisted that there be complete offsets for the energy and extension part of the package.

The Senate version also may include a measure to require health plans for 51 or more employees to give equal treatment to mental health or addiction if they cover such illnesses. The House and Senate have passed similar mental-health parity measures, but none has gone to Bush for his signature.

The surprise move capped a day in which supporters of the imperiled economic proposal fought to bring it back to life, courting reluctant lawmakers with a variety of other sweeteners, including the plan to reassure Americans their bank deposits are safe.

Wall Street, at least, regained hope. The Dow Jones industrials rose 485 points, one day after a record 778-point plunge following the House vote.

Amid Tuesday's negotiations, Federal Deposit Insurance Corp. (FDIC) Chairwoman Sheila Bair asked Congress for temporary authority to raise the limit on deposits by an unspecified amount. That could help ease a crisis of confidence in the banking system, Bair said.

She said the overwhelming majority of banks remain sound but an increase in the cap would help ease a crisis of confidence in the banking system and encourage banks to begin more lending.

Monday's House vote was a stinging setback to leaders of both parties and to Bush. The administration's proposal, still the heart of the legislation under consideration, would allow the government to buy bad mortgages and other deficient assets held by troubled financial institutions. If successful, advocates of the plan believe, that would help lift a major weight off the sputtering national economy.

Bush renewed his efforts to save the plan Tuesday, speaking with McCain and Obama and making another statement from the White House. "Congress must act," he said.

Though stock prices rose, more attention was on credit markets. A key rate that banks charge each other shot higher, further evidence of tighter credit availability.

The rescue package was Topic A on the presidential campaign trail.

"The first thing I would do is say, 'Let's not call it a bailout. Let's call it a rescue,' " McCain told CNN. He said, "Americans are frightened right now," and political leaders must give them an immediate solution and a longer-term approach to the problem.

Obama issued a statement saying that significantly increasing federal deposit insurance would help small businesses and make the U.S. banking system more secure as well as restore public confidence.

Information from The New York Times is included in this report.