Senate Passes Bailout Plan; House May Vote by Friday

The New York Times
By CARL HULSE
Published: October 1, 2008
WASHINGTON — The Senate strongly endorsed the $700 billion economic bailout plan on Wednesday, leaving backers optimistic that the easy approval, coupled with an array of popular additions, would lead to House acceptance by Friday and end the legislative uncertainty that has rocked the markets.
In stark contrast to the House rejection of the plan on Monday, a bipartisan coalition of senators — including both presidential candidates — showed no hesitation in backing a proposal that had drawn public scorn, though the outpouring eased somewhat after a market plunge followed the House defeat. The Senate margin was 74 to 25 in favor of the White House initiative to buy troubled securities in an effort to avoid an economic catastrophe.
Only Senator Edward M. Kennedy, who is being treated for brain cancer, did not vote.
The two Senate leaders, Senators Harry Reid, Democrat of Nevada and the majority leader, and Mitch McConnell of Kentucky, the Republican leader, strongly urged their colleagues to approve the plan despite the political risk given public resentment.
“Supporting this legislation is the only way to make the best of a crisis and return our country to a path of economic stability, prosperity and growth,” said Mr. Reid, who asked that senators vote formally from their desks. The presence in the Senate of both presidential candidates in the final weeks of the campaign also gave weight to the moment. The political tension was clear as Senator Barack Obama walked to the Republican side of the aisle to greet Senator John McCain, who offered a chilly look and a brief return handshake.
Mr. McCain did not make remarks on the legislation. Mr. Obama, in his speech, said the bailout plan was regrettable but necessary and he referred to the stock market drop after the House vote. “While that decline was devastating, the consequences of the credit crisis that caused it will be even worse if we do not act now,” he said.
President Bush issued a statement applauding the Senate for its vote in favor of a bill he called “essential to the financial security of every American.” He urged the House to follow suit.
In the House, officials of both parties said they were increasingly confident that politically enticing provisions bootstrapped to the original bill — including $150 billion in tax breaks for individuals and businesses — would win over at least the dozen or so votes needed to reverse Monday’s outcome and send the measure to President Bush.
The stock market reflected nervous jitters over a vote that was to occur after it closed but that could affect the future of many Wall Street workers. The Dow Jones industrial average was off almost 220 points during the day, but recovered to close down just 19.6 points, or 0.2 percent, at 10,831.07.
Besides the tax breaks, senators also made a change that had drawn widespread support in recent days — a temporary increase in the amount of bank deposits covered by the Federal Deposit Insurance Corporation, to $250,000 from $100,000. And the entire package was attached to legislation requiring insurers to treat mental health conditions more like general health problems, a long-sought goal of many lawmakers who demanded such parity.
As the shape of the new bill became more clear Wednesday, some House Republicans and Democrats indicated that the changes were enough to get them to take another look at the measure and perhaps change their minds — even though the new items being added would substantially increase the burden on taxpayers.
Representative John Yarmuth, a Kentucky Democrat who on Monday voted no, said he found the new proposal more acceptable, as did Representative Jim Ramstad, a retiring Republican from Minnesota who voted in opposition as well.
“The inclusion of parity, tax extenders and the F.D.I.C. increases has caused me to reconsider my position,” Mr. Ramstad said. “All three additions have greatly improved the bill.”
Leaders of both parties in the House, who spent much of Wednesday on the phone taking the temperature of lawmakers not scheduled to return until Thursday, said they were identifying other potential converts as well, and were finding a more receptive audience for the revised measure because of the tax package and other changes.
Some conservative House Republicans and liberal Democrats remained adamantly opposed. “The bailout legislation that the Senate is sending back to the House is a fraternal twin to the one I voted against on Monday — meet the new bill, same as the old bill,” said Representative Joe Barton, Republican of Texas.
While popular, the tax breaks, which had been the center of a bitter dispute between House and Senate Democrats, caused problems as well.
A coalition of centrist Democrats led by Representative Steny H. Hoyer of Maryland, the majority leader, had refused to back the tax benefits unless they were deficit neutral — offset by tax increases or spending cuts elsewhere. The bill now includes the Senate version of the tax plan, which adds most of the cost to the deficit over the next decade.
But the Senate leaders decided to present the House with a take-it-or-leave-it choice, and it is possible some Democrats could desert the bill over the tactic. Mr. Reid said the Senate would remain in session this week to see how House members react and whether they might attempt to change the bill, forcing another Senate review.
Mr. Hoyer said he was disappointed in the Senate’s decision on the tax breaks and worried it could cost Democratic votes. “Certainly there are people who are upset we are making the deficit worse as we are trying to stabilize the economy,” Mr. Hoyer told reporters. But in a telephone conference call among the Democratic leadership Wednesday morning, he told his colleagues he would back the measure because the economic rescue needed to take priority, according to participants.
In the end, Senate leaders decided to overcome some of the ideological and political resistance that doomed the measure in the House with the tried-and-true Congressional approach of stuffing the bill with provisions that would make it hard for many lawmakers to resist.
“All I’m trying to do is get this thing passed,” said Mr. Reid, denying he was trying to jam the House by giving members no choice but to accept the tax proposal he favored or again reject the bailout.
The multiple tax breaks, called extenders in the Capitol because they renew or extend expiring tax benefits, appeal to many lawmakers and could provide a political argument for backing a bill that has otherwise been very unpopular.
Instead of siding with a $700 billion bailout, lawmakers could now say they voted for increased protection for deposits at the neighborhood bank, income tax relief for middle-class taxpayers and aid for schools in rural areas where the federal government owns much of the land.
“This bill has been packaged with a lot of very popular things to give it even more momentum,” said Senator Jeff Sessions, a Republican from Alabama, who is an opponent.
The approximately $150 billion in new tax breaks, which offer incentives for the use of renewable energy and relieve 24 million households from an estimated $65 billion alternative-minimum tax scheduled to take effect this year, would be offset by only about $40 billion in spending cuts or tax increases elsewhere.
Moreover, the increase in federal deposit insurance will not be financed over the short term, as the insurance program now is, by assessing premiums on banks that benefit. Instead, banks will get an open-ended line of credit directly to the Treasury Department. But the Congressional Budget Office noted that federal law requires the banks to eventually make up any shortfall and any loans to be repaid, though not until at least 2010.
The changes in the bill were measurable by volume. The initial proposal from the Treasury Department ran just three pages; the latest version exceeds 450.
After receiving the proposal from Treasury Secretary Henry M. Paulson Jr. almost two weeks ago, Congress instituted a series of changes, including additional oversight, steps to limit home foreclosures and restrictions on the compensation of executives of institutions that take part in the Treasury program.
Under pressure to tighten the plan even more, Congressional and administration negotiators decided to parcel out the $700 billion in installments, starting with a first tranche of $350 billion. And during a weekend of negotiations, they added as a final backstop a requirement that in five years the president must present Congress with a plan to make up any losses of tax funds by looking to the financial community to make up the difference.