A TAX CUT PLAN ADDED: U.S. SENATE VOTES ON NEW BAILOUT
WASHINGTON, October 2, 2008 (STAR) In a surprise move to resurrect US President George W. Bush’s $700-billion Wall Street rescue plan, Senate leaders scheduled a vote on the measure for Wednesday but added a tax cut plan already rejected by the House of Representatives.
Sen. Harry Reid, leader of the Democratic majority, who sets the Senate agenda, and Republican leader Mitch McConnell disclosed the plan Tuesday. The Senate plan also would raise federal deposit insurance limits to $250,000 from $100,000 per account, as suggested by both presidential nominees a few hours earlier.
The move to add tax legislation – including a set of popular business tax breaks – risked a backlash from House Democrats insisting they be “paid for” with savings elsewhere.
By also adding legislation to prevent more than 20 million middle-class taxpayers from feeling the bite of the alternative minimum tax, the step could build momentum from House Republicans for the Wall Street bailout. The presidential candidates, Sens. John McCain, the Republican, and Democrat Barack Obama, intend to fly to Washington for the votes, as does Sen. Joe Biden of Delaware, the Democratic vice presidential candidate.
The alternative minimum tax was created in the 1970s to bring in money from very rich people who avoided heavy taxes through legal loopholes; inflation and escalation in salaries over the decades have put millions of middle-class wage-earners in the range of the increased tax unless it is changed.
The surprise move to have a Senate vote on Wednesday capped a day in which supporters of the imperiled multibillion-dollar economic rescue fought to bring it back to life, courting reluctant lawmakers with a variety of other sweeteners, including the plan to reassure Americans their bank deposits are safe.
Wall Street, at least, regained hope. The Dow Jones industrials average rose 485 points, one day after a record 778-point plunge after the US House rejected the plan worked out by congressional leaders and the Bush administration.
Before Reid and McConnell’s move, lawmakers, Bush and the two rivals to succeed him all rummaged through ideas new and old, desperately seeking to change a dozen House members’ votes and pass the $700-billion plan.
The tax plan passed the Senate last week, on a 93-2 vote. It included the alternative tax relief, $8 billion in tax relief for those hit by natural disasters in the Midwest, Texas and Louisiana, and some $78 billion in renewable energy incentives and extensions of expiring tax breaks. In a compromise worked out with Republicans, the bill does not pay for the AMT and disaster provisions but does have revenue offsets for part of the energy and extension measures.
That was not enough for the House, which insisted that compensation from other expenses be supplied to offset the energy and extension parts of the package.
The Senate move seems aimed at “jamming” the House into accepting the deficit-financed tax cuts. Conservative Democrats will not like the idea, but some Congress-watchers suspect most Democrats might be willing to go along.
Still, the House is where the problems are, and leaders there were scrounging for ideas that might appeal to a few of the 133 Republicans and 95 Democrats who rejected the proposal on Monday.
Senate Banking Committee Chairman Christopher Dodd, a Democrat, told reporters, “I’m told a number of people who voted ‘no’ yesterday are having serious second thoughts about it.” He added, however, “There’s no game plan that’s been decided.”
The idea drawing the biggest support was to raise the federal deposit insurance limit, now $100,000 per account, to $250,000. Several officials, including presidential nominees John McCain and Barack Obama, endorsed the change.
So did the agency that runs the program. Within hours of the candidates’ separate statements, Federal Deposit Insurance Corp. chairman Sheila Bair asked Congress for temporary authority to raise the limit by an unspecified amount. That could help ease a crisis of confidence in the banking system, Bair said.
She said the overwhelming majority of banks remain sound but an increase in the cap would help ease a crisis of confidence in the banking system as well as encourage banks to begin more lending.
Other ideas include extending unemployment insurance benefits, typically a Democratic goal, but one that appeals to some Rust Belt Republicans. Another Democratic-backed idea would double the property tax deduction taken by people who do not itemize their taxes. And another calls for more spending on transportation infrastructure projects, which would create more jobs.
Monday’s House vote was a stinging setback to leaders of both parties and to Bush. The administration’s proposal, still the heart of the legislation under consideration, would allow the government to buy bad mortgages and other deficient assets held by troubled financial institutions. If successful, advocates of the plan believe, that would help lift a major weight off the already sputtering national economy.
The proposal ignited furious responses from thousands of Americans, who flooded congressional telephones. The House voted 228-205 against the plan. Some lawmakers reported a shift in constituent calls pouring into their offices Tuesday after the record stock market decline. Many callers, they said, want Congress to do something without “bailing out Wall Street.”
Bush renewed his efforts, speaking with McCain and Obama and making another statement from the White House. “Congress must act,” he declared.
Though stock prices rose, more attention was on credit markets. A special rate that banks charge each other shot higher, further evidence of a tightening of credit availability.
Bush was talking about everyday Americans on Tuesday, not banks or other financial institutions. And no supporters were using the word “bailout.”
The president noted that the maximum $700 billion in the proposed bill was dwarfed by the $1 trillion in lost wealth that resulted from Monday’s stock market plunge.
“The dramatic drop in the stock market that we saw yesterday will have a direct impact on retirement accounts, pension funds and personal savings of millions of our citizens,” Bush said. “And if our nation continues on this course, the economic damage will be painful and lasting.” – AP
Chief News Editor: Sol Jose Vanzi
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