Congress Clears Way for Second Half of Bailout

By DAVID ESPO
AP Special Correspondent

WASHINGTON (AP) — Congress laid the foundation for President-elect Barack Obama's economic recovery plan on Thursday with remarkable speed, clearing the way for a new infusion of bailout cash for the financial industry while majority Democrats proposed spending increases and tax cuts totaling a whopping $825 billion.

Two days after Obama personally lobbied for release of $350 billion in bailout funds, the Senate narrowly turned aside a bid to block the money.

Across the Capitol, Speaker Nancy Pelosi, D-Calif. said, "Immediate job creation and then continuing job creation" were the twin goals of the separate stimulus legislation. It recommends tax cuts for businesses and individuals while pouring billions into areas such as health care, education, energy and highway construction.

She and Senate Majority Leader Harry Reid, D-Nev., have pledged to have the economic stimulus bill ready for Obama's signature by mid-February.

Both houses debated Obama's call to release another $350 billion from the financial bailout package, but the vote that mattered most was in the Senate. Despite bipartisan anger over the Bush administration's handling of the program to date, Democratic allies of the incoming president prevailed on a 52-42 roll call. The money will be available in less than two weeks, at a time when there is fresh evidence of shakiness among banks.

The vote followed a commitment by Obama to use as much as $100 billion of the funds to help homeowners facing foreclosure proceedings.

The 44th president-to-be was at his transition office across town from the Capitol — and President Bush relegated to the role of virtual onlooker — as events played out at the dawn of a new Democratic era in government. Obama has called for swift and bold action to confront an economic debacle unrivaled since the Great Depression.

In remarks on the Senate floor, Reid said the vote was a victory for Obama, whom he said exhibited courage by seeking release of the money. "This was a test of leadership at a time when leadership is desperately needed," he said.

In a written statement, Obama welcomed the stimulus blueprint as "a significant downpayment on our most urgent challenges," and said, "it will contain the kind of strict, independent oversight that will allow the American people to hold Washington accountable for how and where their tax dollars are spent."

The outlines of the economic stimulus measure reflected a change in political priorities, with an emphasis on spending and tax breaks designed to encourage production of alternative energy sources, make federal buildings more energy- efficient and weatherize homes.

At the same time, more traditional anti-recession spending was built in. There was more than $130 billion for health care, much of it to help states cope with the rising demand for Medicaid, the health care program for the low-income and a recession-era refuge for the newly laid-off.

More than $100 billion was ticketed for education, in part to help local school districts avoid the impact of state budget cuts. Billions more would increase spending for food stamps and unemployment benefits and finance expanded worker retraining programs.

A written summary showed $30 billion for highway construction, $10 billion for mass transit and rail, and $3 billion for airport improvements.

In all, the outline called for $550 billion in new spending and $275 billion in tax cuts. And the $825 billion total is virtually certain to grow as the legislation advances through Congress.

Initial Republican reaction was negative — and played on Obama's popularity to make a point.

"At first glance, it appears that my Democratic colleagues think they can borrow and spend their way back to prosperity with a half-trillion dollars of new spending and less tax relief than President-elect Obama has been talking about," said Republican Rep. John Boehner of Ohio, the party's leader in the House.

Democrats hold expanded majorities in both houses as the result of last fall's elections, and enactment of the stimulus measure is scarcely in doubt.

At the same time, lawmakers made clear they will not hesitate to substitute their own priorities for Obama's.