Senate sweetens deal; vote set today

WASHINGTON - Senate leaders scheduled a vote today on a $700 billion financial bailout package after agreeing to add tax breaks and a higher limit for insured bank deposits in a bid to attract enough votes to reverse a shocking defeat in the House and send legislation to President Bush by the end of the week.

After a day of behind-the-scenes maneuvering, lawmakers said the Senate proposal would include a tax package caught in a stalemate with the House as well as a plan endorsed Tuesday by both major presidential candidates and the Bush administration to raise government coverage for bank deposits. The senators issued no details of their proposal and said none would be available until today.

"It has been determined, in our judgment, this is the best thing to move forward," Senate Majority Leader Harry Reid said in announcing the surprise move. "This is good for the country."

Amid growing expectations that lawmakers would salvage the bailout bill, Wall Street snapped back Tuesday after its biggest sell-off in years.

Lawmakers were gambling that the tax breaks for businesses and alternative energy would appeal to lawmakers who helped sink the House measure Monday without driving off Democrats who have opposed extending the tax incentives without offsetting spending cuts.

Sen. Christopher Dodd, D-Conn., chairman of the Senate banking committee, said the Senate decided to move quickly, citing signs from some House members that they regretted their initial vote after the markets plunged in response. "I think their will is coming back having heard from their constituents," he said.

Voters change their tune?

Lawmakers described Monday's stock market drop as sobering. Some anxiety lifted Tuesday, as the stock market regained more than half of the value it had lost on Monday, with the Dow Jones industrial average up 485 points on the day, or 4.7 percent.

Still, there remained concern about credit markets, as the rate that banks charge one another shot higher, making borrowing more difficult. President Bush joined the two major candidates -- Sens. John McCain and Barack Obama, both of whom said they would return to Washington today for the vote -- in calling for quick action to stabilize the markets.

On the morning after the sell-off, congressional offices reported a shift in angry calls from constituents, with some demanding that lawmakers take some corrective action -- a distinct change from the outpouring of public opposition that contributed to the defeat of the plan. "I started hearing from a lot of people who lost money on their investments thanks to the big drop on Wall Street yesterday," said Rep. Steven LaTourette, R-Ohio, who voted against the plan.

As they explored ways to tinker with the proposal, all sides agreed any revisions would not change the underlying concept of granting the Treasury Department access to as much as $700 billion to buy and eventually resell troubled securities that were clogging the financial system.

It was a delicate balancing act for the architects of the proposal who had to be careful that in adding elements to entice new support they did not lose existing supporters.

However, in winning House Republican votes for the bailout legislation, Democrats may lose some of their own supporters. Democratic and Republican aides warned that the "Blue Dogs" -- a bloc of 47 fiscally conservative Democrats -- might now oppose the plan. The Blue Dogs have opposed extending the tax credits unless there are other spending cuts or tax increases to pay for them.

House leaders were reviewing the new Senate approach and had no immediate reaction on whether they thought it could prevail. The Senate left the door open slightly to other additions to the bill, but other revisions would have to get the agreement of the full Senate, meaning major provisions such as new homeowner tax credits sought by the House would not be considered.

"Opening this up all over again to other things may doom it," Dodd cautioned.

Tax credits and jobs

Senate and House leaders had been debating whether the Senate, where support for the proposal runs deep, should vote first to provide some momentum for a second House vote. Some senators were leery of going on the record if the bill could not prevail in the House, but others backed the idea of the Senate taking the lead.

The Senate tax bill would cost more than $100 billion and extend and expand many individual and business tax breaks, including tax credits for the production and use of renewable energy sources. The bill would extend the business tax credit for research and development, expand the child tax credit, protect millions of families from the alternative minimum tax, and provide tax relief to victims of recent floods, tornadoes and severe storms.

Members of the House and the Senate say the bill would create tens of thousands of jobs and reduce the nations' dependence on foreign oil. But the two chambers have been at odds over whether and how to offset the cost of extending the tax breaks covered by the bill.

With no new vote in the House even possible before lawmakers reconvene Thursday at noon, strategists for both parties spent the day poring over tally sheets from Monday's 228-205 outcome, trying to identify lawmakers who could be switched.

House Minority Leader John Boehner, R-Ohio, spent all day contacting many of the 133 Republicans who voted against it. House leaders are expected to resume face-to-face negotiations today. But winning over some determined opponents was not going to be easy.

"It was one of the best votes of my career," said Rep. Peter DeFazio of Oregon, leader of a group of Democratic opponents of the Treasury plan who proposed a series of regulatory and legislative alternatives.

Those opponents, however, said they would be willing to back an increase from $100,000 to $250,000 in the amount of a bank deposit that would be insured by the federal government -- an idea that on gained fast currency. Obama and McCain embraced that proposal.

In the Senate, some members took to the floor to press their case for enacting the plan.

"Some will feel very virtuous about having voted against Wall Street and then turn around and find their constituents, generally, paid a huge price for that vote," said Sen. Robert Bennett, R-Utah. "I have faith that the members of the House and the members of the Senate will ultimately ... do the right thing."

Sen. Mitch McConnell, the Republican leader, was even more emphatic. He said, "This financial crisis is going to be dealt with by Congress, and it's going to be dealt with by Congress this week."

The Washington Post and Associated Press contributed to this report.