By Richard Cowan and Susan Cornwell
WASHINGTON (Reuters) - The U.S. Congress, handing President Barack Obama a major legislative victory, approved on Friday a $787 billion stimulus bill that aims to rush emergency government spending and tax cuts to a nation in the grip of a severe recession.
The Senate cast the final vote, 60-38, hours after the House of Representatives passed an identical bill, 246-183. The action capped weeks of arguing over how Congress could best stimulate an economy suffering a rising jobless rate of 7.6 percent and a banking crisis that has nearly frozen lending.
'It will not fix our problems overnight,' Senate Appropriations Committee Chairman Daniel Inouye, a Hawaii Democrat, said shortly before the final vote began on the measure, closely watched by financial markets and governments around the world.
But Inouye added, 'It will begin the process ... it will give America confidence that we can overcome this crisis.'
The Senate voting was held open for several hours to await Ohio Democratic Senator Sherrod Brown's arrival in Washington to cast the 60th vote needed for passage. The White House arranged for a government plane to fly him back from services for his late mother in Ohio.
Obama is expected to sign the bill into law soon, fulfilling a pledge to try to reverse the economic slide with a recipe that includes middle-class tax cuts, money for construction projects, help for the poor and unemployed and new investments in alternative energy.
Democrats hope to save or create 3.5 million jobs.
But the Democratic president, in office only since January 20, failed in his efforts to win over Republicans, who are a minority in Congress. Not a single House Republican voted for one of the biggest single spending bills in the nation's history and only three Republican senators backed it.
'I think we need to appreciate that the bill is the largest change in domestic policy since the 1930s' said House Appropriations Committee Chairman David Obey, referring to heavy government investments.
Republicans argued unsuccessfully for less government spending and more tax cuts.
The final plan is split into 36 percent for tax cuts and 64 percent in spending and other provisions. That was close to the 40/60 split Obama had sought in his effort to jolt the economy, which he has warned could become a 'catastrophe' without rapid government intervention.
Senate Republican leader Mitch McConnell complained the bill 'is unlikely to have much stimulative effect.' He said it could be just the beginning of a Democratic spending spree in which Obama might seek $50 billion to help avert some home mortgage foreclosures and possibly hundreds of billions of dollars more to dig the financial sector from its crisis.
House Majority Leader Steny Hoyer chastised Republicans, saying they were sticking to the same economic precepts that proved a failure during the eight-year tenure of Republican President George W. Bush.
The massive new government spending will add significantly to federal budget deficits already shattering records. According to the nonpartisan Congressional Budget Office, the stimulus bill will increase next year's deficit alone by nearly $400 billion.
But Democrats have argued that without the stimulus spending, the economy will decline further, leading to even slower revenues that contribute to higher budget deficits.
The White House said it would take about a month for the money to start flowing. A primary concern for economists is that the stimulus will come too late to do much good in 2009, when many forecasters think full-year output will contract.
'Unfortunately, the downward momentum in the economy is so steep that it is hard to see how the package can kick in quickly enough to make much difference to 2009,' said Nigel Gault, chief U.S. economist at IHS Global Insight.
The Democrats' quest for a new economic stimulus bill -- on top of the $162 billion one enacted a year ago -- actually began last July, when House leaders started crafting a much smaller measure of around $60 billion.
Then-President George W. Bush and his fellow Republicans in Congress blocked that bill, saying it was not needed yet.
As the economy got markedly worse, Democrats pushed for larger stimulus measures. At one point, Congress was considering a $937 billion bill.
To win final passage, a group of Senate moderates crafted a compromise that shaved some of the tax-cut and spending provisions, finally arriving at the $787 billion bill, with most of the spending this year and next. The tax breaks are temporary.
The final package includes about $500 billion in spending and money for social programs like the Medicaid health insurance program for the poor. It has about $287 billion in tax cuts that include small tax incentives to spur home and automobile sales as well as business tax deductions.
Individuals would get a refundable tax credit championed by Obama of up to $400 per individual and $800 for couples in 2009 and 2010. It is phased out for individuals with adjusted incomes of over $75,000 and couples with incomes over $150,000.
The measure includes almost $54 billion to help states with their budget deficits and to modernize schools, $27.5 billion for highway projects, $8.4 billion for public transportation and $9.3 billion for Amtrak and high-speed rail service.
The final agreement also included limits on compensation for senior executives of companies receiving government aid from a $700 billion financial bailout, including restrictions on bonuses.