Senate leaders will vote tonight in a surprise move to resurrect US president George Bush’s $700bn (€482bn) Wall Street rescue plan.
But their proposal risks a backlash by including a tax-cut plan already rejected by the lower House of Representatives.
Senator Harry Reid, leader of the Democratic majority, who sets the Senate agenda, and Republican leader Mitch McConnell revealed their plan early today.
The Senate proposal would also raise government deposit insurance limits to $250,000 (€177,000) from $100,000 (€70,800) 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 – risks opposition 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, Republican senator John McCain and Democrat senator Barack Obama, intend to fly to Washington for the votes, as does Delaware’s Senator Joe Biden, 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 range of the increased tax unless it is changed.
The surprise move to have a Senate vote tonight capped a day in which supporters of the imperilled 700 billion-dollar economic rescue fought to bring it back to life, courting reluctant politicians 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 Mr Reid and Mr McConnell’s move, lawmakers, President Bush and the two rivals to succeed him rummaged through ideas new and old, desperately seeking to change a dozen House members’ votes and pass the bail-out plan.
The tax plan passed the Senate last week on a 93-2 vote. It included the alternative tax relief, €5.68bn in tax relief for those hit by natural disasters in the Midwest, Texas and Louisiana, and €54.6bn 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 (alternative minimum tax) and disaster provisions, but does have revenue offsets for part of the energy and extension measures.
But 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.” But he added: “There’s no game plan that’s been decided.”