The Senate Wednesday night easily approved a massive 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 earlier this week.
As the Bush administration issued fresh warnings that Congress' failure to act would have dire consequences for the economy, the Senate revived the package the House defeated Monday and voted to approve it, 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 night would extend an array of tax breaks worth $108 billion to businesses and families next year. It would also temporarily increase the limit on federal insurance for bank deposits from $100,000 to $250,000.
Sen. Christopher Dodd, D-Conn., chairman of the Senate Banking Committee, acknowledged 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, 15 Republicans and one independent opposed the plan.
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 congressmen 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.
“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 as many as 100 GOP votes – enough to put it over the top if Democrats can garner as many votes as they did on 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.
Across Washington 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 White House officials intensified their lobbying campaign, and both presidential candidates – Sen. John McCain, R-Ariz., and Sen. Barack Obama, D-Ill. – spent part of the day calling lawmakers.
Treasury Secretary Henry Paulson also worked the phones, participating in numerous conference calls. Other business groups, including the U.S. Chamber of Commerce, also joined the campaign, as did the AARP.
“People's nest eggs are disappearing,” AARP President Bill Novelli said. “It's no secret that people are angry about bailing out Wall Street. But Wall Street is us. These are our stocks, our retirement funds and our futures.”
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” on Monday in surprisingly large numbers, with a new property tax deduction of up to $1,000 for homeowners who do not currently itemize deductions on their federal income taxes.
The homeowners' deduction is part of a massive tax package that has been batted back and forth between the House and Senate for months and was tacked onto the bailout. That package includes new tax breaks for renewable energy and a much longer list of expired tax cuts that would be extended for two years. The largest, which would be extended for one year, would restrain the growth of the alternative minimum tax, a parallel tax structure that would add thousands of dollars to the tax bills of more than 20 million families next year without congressional action.
The package also contains nearly $9 billion for disaster relief over the next 10 years, and $3.3 billion over the next decade for rural schools.
The new measure was assembled behind closed doors on 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.
Negotiators said Obama played a minor but important role in courting Democratic holdouts, contacting individual lawmakers from the campaign trail.
During Senate debate Wednesday, Obama echoed Franklin D. Roosevelt's first fireside chat to the nation during the Great Depression, calling on the American people to have “confidence and courage.”
“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. He later supported the measure. Sen. Edward Kennedy, D-Mass., who is ailing, was not present.