WASHINGTON _ In a historic vote, the Senate approved a massive $700 billion rescue plan for the nation's finance system Wednesday night, but only after tacking on another $110 billion in tax breaks to lure votes from both parties.
A strong bipartisan majority rallied behind the controversial Wall Street bailout package, passing it by 74-25.
The vote sends the measure to an uncertain fate in the House of Representatives, where lawmakers rejected the original version on Monday, 228-205. A new House vote is expected on Friday, and many lawmakers in both parties there remain opposed to it.
President Bush, Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke have warned repeatedly that failure to pass the legislation would lead vital credit markets to seize up, forcing employers to lay off employees, plunging the economy into recession and perhaps even another Great Depression.
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In a statement, Paulson praised the Senate vote.
"This sends a positive signal that we stand ready to protect the U.S. economy by making sure that Americans have access to the credit that is needed to create jobs and keep businesses going," he said. "I urge the House to act promptly to pass this bill.
Senators of both parties, including Democratic presidential nominee Barack Obama of Illinois and Republican presidential nominee John McCain of Arizona, said that threat made it imperative for Congress to pass the financial-rescue package.
"Inaction is not an option," said Senate Majority Leader Harry Reid of Nevada. "This is _ I repeat _ a crisis. . . . We've got to get this done."
Senate Republican Leader Mitch McConnell of Kentucky agreed.
"The question is not how we got here, but how we get out," McConnell said.
Not all senators went along.
"Action is clearly needed to return stability to our financial markets, but most importantly, effective, sound action is needed. To fix the markets, we must deliver a market-based solution, not a government bailout," said Sen. Elizabeth Dole, R-N.C.
Many lawmakers voiced disdain for the extra tax breaks the Senate added to the financial-rescue package. They ranged from a one-year fix to prevent the alternative-minimum tax from hitting more taxpayers to extending the research credit for business to allowing rural utilities to issue tax-exempt bonds for use of renewable energy.
Also included were more obscure terms extending tax breaks for motor-sports racing tracks, makers of wooden arrows for children, and the rum excise tax for Puerto Rico and the Virgin Islands.
The tax breaks added to the Senate bill would cost the Treasury an estimated $110 billion over 10 years, according to Congress’ Joint Committee on Taxation.
"It's garbage," said Rep. Devin Nunes, R-Calif. "They’re trying to put more decorations on the Christmas tree, but the problem is the Christmas tree."
"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 Rep. Joe Barton, R-Texas, who led efforts to kill the House bill. "I'm kind of an old- fashioned guy, and I think we ought to pay for what we do as a government, but instead we’re talking about adding $1.5 trillion to our national debt and forcing our children to pay the cost."
Dole echoed that sentiment.
"Because of unrelated spending additions, this bill now comes at a cost of over $800 billion, and it is still a government takeover of our economy with no protection for taxpayers. It raises the debt ceiling to $11.3 trillion. It bails out foreign investors before American homeowners struggling to pay their mortgages. And it does nothing to address the root cause of this mess, the housing crisis," Dole said.
Sen. Jim DeMint, R-S.C., echoed many angry constituents.
"It forces innocent taxpayers to bail out government policies and Wall Street mistakes. It asks the American people to take a leap of faith and trust people who have consistently misled them," DeMint said. "Our own government appears to be leading our country into the pit of socialism."
And some Senate Democrats also felt the bill didn't do enough to help struggling homeowners stay in their homes.
"Until we stabilize the housing markets and until we stem the record number of foreclosures, our market is simply not going to improve," said Sen. Bill Nelson, D-Fla.
Some top House Democrats were also upset that the Senate's tax breaks were mostly for business.
"If they’re looking to make the rescue package better for families on Main Street, there are many House-passed provisions that would provide immediate relief, such as an extension of unemployment benefits, money for food stamps and help for families struggling to afford heating oil with winter around the corner," said Rep. Charles Rangel, D-N.Y., chairman of the tax-writing House Ways and Means Committee, in an angry statement.
Rangel didn't say whether he'd vote for the revised measure.
House Majority Leader Steny Hoyer, D-Md., also was unhappy.
"I am personally disappointed that the Senate has chosen to add the so-called extender bill to this recovery bill," he said. "Certainly there are people who are upset by the fact that we are making the deficit worse as we try to stabilize the economy."
Like the legislation the House rejected Monday, the Senate bill essentially would create a $700 billion federal program to buy bad assets from banks and other financial firms at a steep discount. The hope is that the government would recoup much or all of that money by selling the assets later, once stability returns to the financial world.
The measure also includes strong terms to ensure legislative oversight of the Treasury-run bailout and would give the government an ownership stake in firms that get bailed out. That would give taxpayers a share of any profits once the firms return to profitability.
The Senate version would make one significant change to the earlier financial-rescue package. It would more than double the insurance that the Federal Deposit Insurance Corp. provides on customer deposits to $250,000 from the current $100,000. The higher amount would apply for one year.
The FDIC would also be granted unlimited temporary powers to borrow without limit from the Treasury to keep the banking system solvent. Economists think that the FDIC measures, if also approved by the House, would provide a boost of confidence for small community banks.
"I think many small banks feel like they’re losing the competition in keeping deposits . . . and are fearful they won’t have the deposits to (allow them to) make the much-needed loans in their communities to businesses," said Mark Zandi, chief economist for Moody’s Economy.com. "It will give them a more level playing field with the mutual funds and bigger banks, because people won’t be nervous about putting their money into smaller banks."
In mid-September, Treasury announced it would provide virtually unlimited insurance of money-market funds to halt what was becoming a stampede out of that market. It worked, but it also made these funds more attractive to many depositors than banks, where deposits are insured only up to $100,000 per depositor.
The FDIC measures are temporary but come with a measure of risk. When the original deposit insurance was raised in 1980 from $40,000 to $100,000, savings and loan institutions, comforted by the higher protection from the government, overextended themselves in real estate loans and the purchase of junk bonds.
"The big increase in 1980 by the S&L industry helped bring us the S&L crisis," said Kenneth Thomas, a finance professor at the University of Pennsylvania's Wharton School. "The FDIC's original intent was to help protect ‘small savers’ not investors."
(Also contributing to this story were David Lightman, Barbara Barrett, Lisa Zagaroli, Maria Recio, James Rosen, William Douglas, Lesley Clark and Renee Schoof.)
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