Senators sweeten bailout
WASHINGTON -- The Senate approved a $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 bipartisan majority rallied behind the bailout package, passing it 74-25.
Sens. John Ensign, R-Nev., and Senate Majority Leader Harry Reid, D-Nev., voted for the bill.
The vote sends the measure to an uncertain fate in the House, 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 another Great Depression.
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 Reid. "This is -- I repeat -- a crisis. ... We've got to get this done."
Senate Republican Leader Mitch McConnell of Kentucky agreed, saying, "The question is not how we got here, but how we get out."
Ensign said the bill was not perfect, but necessary.
"Under this bill, all Nevadans also receive critical tax relief, including extension of the state and local sales tax deduction, and important incentives for renewable energy," Ensign said in a statement.
Ensign was referring to the decision by Reid and other Senate leaders to add $110 billion in tax breaks for alternative energy companies as well as states like Nevada.
"For states west of the Mississippi, this is big time stuff," said Reid. "This will allow especially rural America and the West to be able to take care of their schools, to do the things that are so important."
But critics grumbled that adding the so-called "tax extenders" to the economic recovery package will make it more difficult for the House to pass the bill because of the opposition of many conservative Democrats called Blue Dogs.
Many lawmakers voiced disdain for the extra tax breaks the Senate added to the financial-rescue package.
They breaks 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."
Sen. Elizabeth Dole, R-N.C., 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," Dole said. "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."
Sen. Jim DeMint, R-S.C., echoed 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."
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 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.
Rangel didn't say whether he would 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," Hoyer 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 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 also would be granted unlimited temporary powers to borrow without limit from the Treasury to keep the banking system solvent.
Economists think the FDIC measures 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.
In mid-September, the 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 those 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 purchase of junk bonds.
Reid predicted the House would pass the bill.
"The American people have a right to be frustrated with the economic crisis that they face, and we share that with them," Reid said. "But inaction is not an option, which is why we worked expeditiously and in a bipartisan manner to stop a bad situation from getting even worse."
Stephens Washington Bureau writer Tony Batt contributed to this report.
The underlying legislation would: Provide business tax breaks, including for production of, investment in, and the use of renewable fuels. • Require group health plans that include mental health or addiction treatment to provide coverage for those conditions that is equitable to other medical coverage. • Increase personal credits against the alternative minimum tax, shielding more than 20 million taxpayers from the tax. • Grant tax relief to victims of natural disasters in the Midwest and elsewhere. • Extend through 2011 a program that funds rural schools and local governments that have low property-tax bases because they lie within or are adjacent to federal lands. • Extend until the end of 2009 the deduction for state and local general sales taxes. • Extend until the end of 2009 individual tax breaks, including deductions for higher education costs and teachers' personal expenses. • Increase, from $100,000 to $250,000, the limit on federal bank deposit insurance. Among the sweeteners added are those that would: Authorize $700 billion for the government to purchase troubled assets and buy equity in distressed financial firms. • Require the Treasury Department to make rules to prevent excessive compensation for executives whose companies benefit from the rescue, and cap deductibility of executives' pay packages at $500,000 for firms that get $300 million or more from the program. • Establish an oversight board for the program, a special investigator general to monitor it and regular government audits. • Require that the president establish a plan to recoup the cost from the financial industry if, after five years, there are any losses. • Phase in the money for buying troubled assets, with $250 billion available immediately, $100 billion to be released if the president certifies it is needed, and the last $350 billion available with another certification, but subject to a congressional vote.
