Washington – After gliding to victory in the Senate late Wednesday, the Bush administration’s proposed $700 billion financial rescue plan heads back to the House, where its prospects remain uncertain despite the inclusion of tax breaks and consumer perks designed to win over enough votes to push it through.
It was an anguished vote for senators. Many expressed misgivings about the bill even as they voted for it. But it is likely to be an even tougher vote for House lawmakers, each of whom is already on record as being for or against the plan - and most of whom are up for reelection in 33 days.
The House of Representatives just three days ago rejected an earlier version of the bill, stunning party leaders and driving down stock values worldwide on the day. The Senate version of the rescue legislation – which has been widely derided as a bailout of high-flying Wall Street CEOs – contains the same basic provisions as the defeated House bill, plus some tax-break extensions and extra guarantees for depositors.
Even so, this time the political forces appear to be aligning more favorably for the bill – and the world, along with Main Street USA, is watching.
As the Senate took up the issue Wednesday night, news crews spilled out into the corridors and the public jammed available galleries. The final vote was 74 to 25 in favor. Presidential hopefuls John McCain and Barack Obama both voted for the measure, as did Democratic vice-presidential candidate Joseph Biden.
“We’ve sent a clear message to all America that we will not let this economy fail,” said Senate majority leader Harry Reid, after the vote.
The changes in the Senate version of the bill came down to two points aimed less at the Senate, where passage of the plan had been expected, than at the House.
One provision in the revised Senate plan would raise the Federal Deposit Insurance Corp.’s (FDIC) limit for insuring individual bank accounts from $100,000 to $250,000. The move aims to boost confidence in financial markets and enjoys broad bipartisan support in both chambers.
But the second major revision, a $110 billion package of tax extensions, is one of the most bitterly divisive issues in the 110th Congress. Backers of the rescue plan say it's this very divisiveness, ironically, that could change the calculus of votes in the House and secure victory in a vote expected by Friday.
“We’re optimistic. And I think a good vote coming out of the Senate will certainly be helpful over in the House side,” said Republican Senate leader Mitch McConnell on Wednesday.
After the Senate vote, House speaker Nancy Pelosi released a statement, pledging that "the House will act in a bipartisan way to restore market confidence as well as Main Street’s confidence in our economic future."
The proposed rescue plan provides as much as $700 billion for the Treasury secretary to buy "troubled assets" from financial institutions, including foreign banks doing business in the United States. Congressional negotiators added other features: oversight, curbs for excessive executive compensation, and an option – urged by House Republicans – for the Treasury secretary to solve the problem through insurance and loans, rather than purchase of assets.
After the bill failed in the House, Senate negotiators began working on add-ons that could win over enough support in the House to pass on a second vote.
"The FDIC was talked about immediately after the House vote failed," said Sen. Pete Domenici (R) of New Mexico.
But the key new element is the tax package, viewed by both sides of the aisle as must-pass legislation but stymied by disagreements between the House and Senate over how to pay for it.
The package includes repeal for a year of the Alternative Minimum Tax (first drafted to make sure that the superrich pay some income taxes, but now set to hit more than 22 million additional Americans if Congress does not act); disaster relief; a clean-energy tax package; and tax-break extensions, such as the popular research-and-development tax credit, deductions for tuition and education expenses, and deductions for sales tax in states that do not have an income tax.
The glitch is financing. The House has always insisted that the plan be paid for mainly with budgetary offsets – a signature demand of the Blue Dog caucus, a group of fiscally conservative Democrats. The Senate insists that offsets are not necessary for extending expiring tax cuts.
The tax package had passed the Senate by a vote of 93 to 2 on Sept. 23, but House Democratic leaders refused to take it up because it did not offset all new spending and tax cuts. By attaching the package to a rescue plan seen as vital to the health of America’s economy, the Senate is trying to force the House to pass both.
Here’s how: If some House Republicans who opposed the rescue plan on Monday (133 of 198 voted no) are attracted enough by the tax package, they’ll flip their votes. Some Blue Dog Democrats, angered that they now have to swallow new spending that’s not paid for, may drop their support of the bill, but perhaps not by enough numbers to sink it.
Many senators on Wednesday described the vote on a rescue plan for financial markets as the toughest of their career. They, too, are angry at Wall Street for the misdeeds that led to a financial crisis, they said.
“This isn’t a matter of helping Wall Street,” said Sen. Carl Levin (D) of Michigan, after Wednesday’s vote. “It’s a matter of trying to the best of our ability to protect people's pensions and savings, home values and jobs and businesses. That’s what’s at stake here.”
“Don’t expect any ribbons for this one.... If it works, the cataclysmic event won’t happen and you’ll never be given any credit for avoiding a problem,” Sen. Christopher Dodd (D) of Connecticut, who chairs the Senate Banking Committee, told his Democratic colleagues at lunch on Wednesday.
Opponents of the bill said they, too, were torn.
“It was a tough vote for me, but they stacked in so much spending there that pretty soon the concern for increasing the debt limit and the expenses was a problem. I've always been known as a fiscal conservative,” said Wayne Allard (R) of Colorado, one of seven Republican senators who opposed the bill and also face a reelection race in November.
“We are on uncharted water here,” said Sen. Kent Conrad (D) of North Dakota, who chairs the Senate Budget Committee. “We’ve got the chairman of the Federal Reserve telling us that if we don’t do this, 4 million Americans will lose their jobs in the next six months,” he added. “We have got to move forward.”