Senate Approves Bailout

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Obama Urges Senators to Back Bailout Bill

Democrat Barack Obama returned to Capitol Hill, calling on Congress to pass a $700 billion rescue bill for the financial sector. Obama, who started the day in Wisconsin, broke off the campaign trail to return to Washington and vote on the bill.

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Treasury Secretary Henry M. Paulson Jr. also worked the phones, participating in conference calls with banking groups and business associations. Other organizations joined the campaign, including the AARP, whose members have inundated lawmakers with more than 110,000 e-mails in recent days.

"People's nest eggs are disappearing," AARP chief executive Bill Novelli said. "It's no secret that people are angry about bailing out Wall Street. But Wall Street is us. These are our stocks, our retirement funds and our futures."

House leaders, meanwhile, leaned on rank-and-file members to fall in line behind the new plan, plucking out provisions to sell to specific constituencies. Party leaders hoped to lure African American lawmakers, who voted "no" on Monday in surprisingly large numbers, with a new property tax deduction of up to $1,000 for homeowners who do not currently itemize deductions on their federal income taxes. Advocates say 30 million people would be eligible for the benefit.

The homeowners' deduction is part of a massive tax package that has been batted back and forth between the House and Senate for months and was tacked onto the bailout legislation. That package includes new tax breaks for renewable energy and a much longer list of expired tax cuts that would be extended for two years. The largest, which would be extended for one year, would restrain the growth of the alternative minimum tax, a parallel tax structure that would add thousands of dollars to the tax bills of more than 20 million families next year without congressional action.

The tax package also would extend federal deductions for sales taxes in states that do not levy an income tax, as well as for tuition and for teachers who spend their own money on classroom supplies. There are also tax breaks worth nearly $40 billion for businesses over the next 10 years, including incentives for conducting research and development domestically, for opening new restaurants and for doing business in the District.

The measure also would require insurance companies to provide the same level of coverage for mental illnesses as for other heath problems, a long-sought priority for Democrats.

The cost of the package would be offset somewhat by new taxes on hedge-fund managers who avoid taxes by transferring income offshore, as well as by a new reporting requirement for stock brokers that would make it easier to tax capital gains on stock sales. Still, those provisions would come nowhere near covering the cost of the package, which the Joint Committee on Taxation yesterday estimated at $110 billion over the next decade.

The new bill was assembled behind closed doors on Tuesday. In an unusual bipartisan power play, Senate Majority Leader Harry M. Reid (D-Nev.) and Minority Leader Mitch McConnell (R-Ky.) collaborated to produce a package that could easily pass the Senate and build momentum in the more reluctant House.

They also saw an opportunity to force through the Senate-drafted tax package, even though House leaders earlier had insisted it be accompanied by other tax increases to avoid adding to the deficit. Reid's main priority was securing the renewable energy tax credits, which would benefit his home state. The provisions reward investments in wind and solar energy and the purchase of plug-in electric cars.

Senior Democratic aides who were involved in the negotiations said Reid kept Hoyer informed but did not engage him because Hoyer led the House opposition to the Senate tax package. But Reid spoke with House Speaker Nancy Pelosi (D-Calif.) at least three times Tuesday, aides said.

Negotiators said Sen. Barack Obama (D-Ill.) played a minor but important role in courting Democratic holdouts, contacting individual lawmakers from the campaign trail. He also announced his support for an increase in the FDIC insurance limit; his opponent in the presidential race, Sen. John McCain (R-Ariz.) did so as well.

During Senate debate yesterday, Obama echoed President Franklin D. Roosevelt's first fireside chat to the nation during the Great Depression, calling on the American people to have "confidence and courage" through what is likely to be an extended period of economic turmoil.

"This is not just a Wall Street crisis. It's an American crisis," Obama said. "Passing this bill can't be the end of our efforts to support the economy; it must be the beginning."

McCain was elsewhere in the Capitol and did not speak during the debate. He later supported the measure.

Minutes before the vote started, senior aides predicted the "yeas" could be as few as 60, the minimum needed to pass. But when the moment arrived, senators sat at their desks, appearing grave and intent, and the "no" votes were surprisingly few. Only three senators who face tough re-election battles -- GOP Sens. Elizabeth Dole (N.C.) and Roger Wicker (Miss.), and Democratic Sen. Mary Landrieu (La.) -- were opposed.

Bush issued a statement last night applauding the Senate for passing the bill. The White House said the president planned to remain in Washington until after the House vote on Friday, then depart for a previously scheduled trip for the weekend.

Despite some grumbling, Democratic proponents of the bailout package said they did not expect many lawmakers who supported the bailout plan Monday to switch their votes tomorrow. "How do you say, if you voted yes already, now that it has tax cuts and FDIC insurance, that you're going to vote against it? That just doesn't make sense," noted one senior Democratic lawmaker, speaking on condition of anonymity so he could speak candidly.

Conservative Republicans remained among the most fervent opponents. But Rep. Jeb Hensarling (R-Tex.), chairman of the conservative Republican Study Committee, sent a letter alerting members that the new measure "contains far more tax relief than tax increases" and is not considered "a taxpayer pledge violation" by the anti-tax group Americans for Tax Reform.

Meanwhile, a handful of more moderate House Republicans yesterday signaled that they were at least studying the changes in the bill. Reps. Charles Boustany Jr. (R-La.), Pat Tiberi (R-Ohio) and Marsha Blackburn (R-Tenn.) all voted against the measure Monday, but their aides said yesterday that they were undecided on the latest version.

House lawmakers said that calls and letters to their offices yesterday remained overwhelmingly against the bailout but that there had been a shift since Monday's gut-wrenching drop in the stock market. Rep. Michele Bachmann (R-Minn.), who cheered on the House floor as the bill went down, said her office was hearing from slightly more people who support it.

"There's been more media attention," she said. "People are talking. People are getting more educated."

Staff writers Jonathan Weisman and Dan Eggen contributed to this report.