Senate passes bailout; House feeling the heat

WASHINGTON — The Senate on Wednesday night approved a plan to shore up the U.S. financial system, but the measure faces a tougher test Friday in the House, where leaders will try to reverse the stunning defeat the legislation suffered Monday.

As the Bush administration issued fresh warnings that Congress' failure to act would have dire consequences for the economy, the Senate voted to approve the plan, 74-25.

The proposal — which calls for spending up to $700 billion to buy bad assets from faltering financial institutions — was heavily revised to attract wider support. The bill passed Wednesday would extend an array of tax breaks worth $108 billion to businesses and families next year. It also would temporarily increase the limit on federal insurance for bank deposits from $100,000 to $250,000.

Sen. Chris Dodd, D-Conn., chairman of the Senate Banking Committee, acknowledged late Wednesday that it was tempting to oppose a bailout and "stick a finger in the eye of the bankers and the tycoons whose greed brought us to this crisis."

"But after the rush of righteousness fades, what then?" said Dodd, an architect of the package. "We can take a cut at Wall Street, but Wall Street won't feel the brunt of the pain."

Nine Democrats, including Washington's Maria Cantwell, 15 Republicans and one independent voted against the plan.

Washington's Patty Murray, a Democrat, voted for the proposal, as did presidential nominees John McCain and Barack Obama, and vice-presidential nominee Joseph Biden. Only Sen. Edward Kennedy, who is being treated for brain cancer, did not vote.

The provisions added to the original bill infuriated fiscally conservative Democrats in the House, who have argued for months that the tax breaks should not be extended at the expense of increasing the federal deficit. Yet some members of Congress who opposed the bailout Monday were newly interested in the package Wednesday.

Rep. John Shadegg, R-Ariz., an influential conservative, said the new bill was "materially better" than the one that failed in the House, sending the Dow Jones plummeting a record 777 points.

"Much as I would like to see much more dramatic changes, there comes a point in time where we've got to send the signal to the U.S. markets, U.S. consumers and world markets that we're dealing with this," Shadegg said. "I'm inclined to hold my nose and vote yes."

House Republicans said the new package could attract up to 100 GOP votes, enough to put it over the top if Democrats can garner as many votes as they did Monday. House Majority Leader Steny Hoyer, D-Md., said he and other fiscal conservatives are "angry" about the addition of the tax provisions but unlikely to abandon the package.

"Frankly, we really don't have much flexibility and this is important to do," he said.

Across Washington on Wednesday, politicians and interest groups worked frantically to build support for the bailout, which seeks to prop up U.S. financial institutions and calm investors.

President Bush and other White House officials intensified their lobbying, and McCain, R-Ariz., and Obama, D-Ill., spent at least part of the day phoning lawmakers. Treasury Secretary Henry Paulson also worked the phones.

House leaders, meanwhile, leaned on rank-and-file members to fall in line behind the new plan, plucking out provisions to sell to specific constituencies.

Party leaders hoped to lure African-American lawmakers, who voted "no" Monday in large numbers, with a new property-tax deduction of up to $1,000 for homeowners who do not itemize deductions on their federal income taxes. Advocates said 30 million people would be eligible.

The cost of the tax package would be offset somewhat by new taxes on hedge-fund managers who avoid taxes by transferring income offshore — a provision that would raise $25 billion over 10 years — and a new reporting requirement for stock brokers that would make it easier to tax capital gains on stock sales. But that would come nowhere near covering the cost of the package.

The new measure was assembled behind closed doors Tuesday. In an unusual bipartisan power play, Senate Majority Leader Harry Reid, D-Nev., and Minority Leader Mitch McConnell, R-Ky., collaborated to produce a package that could easily pass the Senate and build momentum in the more reluctant House.

They also saw an opportunity to force through the Senate-drafted tax package, even though House leaders earlier had insisted it be accompanied by other tax increases to avoid adding to the deficit. Reid's main priority was securing the renewable-energy tax credits, which would benefit his home state. The provisions reward investments in wind and solar energy and the purchase of plug-in electric cars.

During debate Wednesday, Obama echoed President Franklin Roosevelt's first fireside chat to the nation during have "confidence and courage" through what is likely to be an extended period of economic turmoil.

"This is not just a Wall Street crisis. It's an American crisis," Obama said. "Passing this bill can't be the end of our efforts to support the economy; it must be the beginning."

McCain was elsewhere in the Capitol and did not speak during the debate.