Congress resorts to tax cuts to help pass bailout

By Richard Cowan

WASHINGTON (Reuters) - Democratic and Republican leaders in Congress on Wednesday predicted a revised $700 billion financial industry bailout bill would likely pass this week, reversing Monday's stunning vote by the U.S. House of Representatives.

Senate leaders were confident they could deliver the votes needed sometime after 7:30 p.m. EDT/(2330 GMT) on Wednesday to pass the Wall Street bailout bill. If the controversial legislation clears the Senate with bipartisan support, the House was likely to consider the retooled bill on Friday, House Majority Leader Steny Hoyer, a Maryland Democrat, said.

The Senate wants to couple the measure with extension of some popular tax breaks to the middle-class and others while also providing more insurance -- a maximum $250,000 per account instead of $100,000 -- for people's bank deposits.

"I'm confident that we'll get a good strong bipartisan vote here in the Senate," predicted Senate Majority Leader Harry Reid, a Nevada Democrat.

His Republican counterpart, Sen. Mitch McConnell of Kentucky, added, "We're confident that the way we've got this package will work in the Senate and we're optimistic it'll work in the House."

President George W. Bush expressed confidence in the bill's fate this time around but warned lawmakers the measure was necessary "so as to stabilize this (economic) situation, so that it doesn't get worse."

Financial markets on Wednesday marked time in the run-up to the Senate vote, in contrast to the record 778-point drop on Monday in reaction to the failed vote in the House.

The expanded insurance for bank depositors would come as three of the biggest U.S. banks have succumbed to the crisis in recent months, with more teetering before the November 4 presidential and congressional elections.

Democrats control both chambers in Congress, but need Republican support to push through the bailout -- proposed by Bush's administration to avert what the administration says would be a deeper financial crisis that could spread globally.

Kevin Smith, a spokesman for House Minority Leader John Boehner, an Ohio Republican, said the new version of the bailout bill could be more attractive to Republicans in key states because of a tax provision extending a deduction for state and local sales taxes.

"I do think we have a better chance of passing this bill than the one on Monday," Smith said.

The overall tax provision renews a package of cuts that have expired or are about to expire for the middle class, small businesses and entrepreneurs working on renewable energy projects, which would be attached to the bailout.

MAIN STREET, NOT JUST WALL STREET

Besides keeping tax rates lower for the middle-class, Reid said the other provisions "will create hundreds of thousands of jobs here in the United States," sparking investment in small and large businesses."

Congress was determined to renew these tax breaks anyway, in time for next April's tax filing season.