Fresh Optimism For Bailout Package

The White House is now cautiously optimistic that it has turned the corner and can see a path for Congress to complete action Friday on Treasury’s $700 billion rescue plan for the financial markets. 

Caution is still very much the watchword in what remains a ticklish political situation. But after Monday’s defeat in the House, the Senate is expected to jump start the process Wednesday night by approving a greatly expanded bill that blends in more than $100 billion in popular tax breaks as well as aid to rural schools important to House Republicans 

Both presidential candidates, Sens. John McCain and Barack Obama, are slated to return for the two pivotal roll calls. And the leadership is betting that a strong Senate vote—with support from both candidates—will marginalize opponents in the House, which could then vote Friday on final passage. 

“No one is happy but we cannot let the perfect be the enemy of the good,” said Sen. Hillary Rodham Clinton (D-N.Y.) adding her support in a floor speech Wednesday afternoon. 

With each permutation, the bill has steadily grown in size. Treasury’s initial plan was about three pages long. The House version, which failed, stretched to 110. The Senate substitute, which came to the floor Thursday afternoon, runs over 450 pages. The Senate vote may not come until 9 p.m. 

Tucked away in the tax provisions is a landmark health care provision demanding that insurance companies provide coverage for mental health treatment—such as hospitalization—on parity with physical illnesses. And to calm voters fearful of bank failures, the $100,000 cap on federal insurance for deposits would also be raised to $250,000. 

This adjustment is widely popular and aimed especially at community banks which can be helpful in building small town support for the larger bill. 

When the Treasury plan went down in the House, it was clearly hurt by the public perception that it was nothing more than a costly bailout for Wall Street. Since then there has been a more concerted effort by proponents to broaden grassroots support around the nation. 

The U.S. Chamber of Commerce has begun radio ads targeted at lawmakers. The Republican and Democratic chairmen of national governors associations for the two parties released a joint letter Wednesday urging Congress to act. And the courtship of community banks – by raising the insurance level for deposits – builds on a decision over the weekend to also include tax breaks for local banks that were hurt by the government takeover of the two mortgage finance giants Fannie Mae and Freddie Mac. 

The strategy is not without risk in the House given the added costs of the tax package. Congressional Budget Office estimates indicate that the net impact will be to add almost $105 billion to an already large deficit next year, and fiscal conservatives, like Rep. John Tanner (D-Tenn.) were restless and could feel they are being straight armed by the Senate which has refused to do more to offset the costs.

Any Democratic defections puts that much more pressure on House Republicans to grow their vote well beyond the 65 members who backed the bill Monday. Interviews suggested it was still tough going, but President Bush was calling House Republicans Wednesday, and Obama appears to have become more involved in trying to shore up Democratic support.

The biggest single piece in the package is an extension of protections for millions of middle-class families who would otherwise find themselves exposed to the higher levy under the alternative minimum tax. This alone accounts for about three-quarters of the cost, $78.8 billion in 2009. Almost $14 billion more can be attributed to a variety of tax break extensions important to business, including the research and experimentation credit worth about $8.4 billion in 2009.

At a time of high energy prices, the bill includes about $18 illion in tax benefits for renewable fuels, to be financed at the expense of the oil industry in some cases. The rural school aid is smaller — about $3.3 billion over the next five years — but has great importance for many Western communities and could be a selling point in the House.

Speaker Nancy Pelosi (D-Calif.), who was returning to Washington Wednesday from San Francisco, was kept informed by Senate Majority Leader Harry Reid (D-Nev.) as he developed the new strategy Tuesday in consultation with the White House Chief of Staff Josh Bolten and Senate Republican Leader Mitch McConnell.

But it was more a situation of her being “told, not asked," said a House aide, and the high costs could put her in an awkward spot since she has vowed to stand up for fiscal moderates in her caucus.

House Majority Leader Steny Hoyer (D-Md.) also warned on Wednesday morning that adding tax extenders might cause Democratic votes to drop off.

Speaking on The Today Show on NBC, Hoyer said he was “not particularly pleased” that the Senate has decided to add a set of tax breaks to the bailout package. But Reid’s office said Hoyer had also been kept informed as the revisions were made.