By Jeremy Pelofsky and Richard Cowan
WASHINGTON (Reuters) - U.S. lawmakers began haggling in earnest over a final package of tax cuts and spending on Tuesday after the Senate passed its $838 billion version of a rescue plan to fight the deepening recession.
President Barack Obama wants the Democratic-controlled Congress to deliver a package by this weekend so he can sign it into law. But he must keep together a narrow coalition that wants the price tag lowered to about $800 billion.
The House of Representatives passed its own $819 billion measure and the two chambers have appointed a small group of lawmakers to iron out differences in talks that could drag into next week.
The Senate voted 61-37 on Tuesday to approve its version, with support from just three Republicans, while the House had last month passed its package with no Republican support.
Obama met House Speaker Nancy Pelosi and Senate Majority Leader Harry Reid at the White House earlier on Tuesday to discuss moving ahead and later the new president, on a visit to Florida to build support, called the Senate vote "good news."
"The speaker and I think we can get a lot of the work done in the first 24 hours," Reid told reporters before meeting with White House Chief of Staff Rahm Emanuel and moderate senators who helped craft the compromise the Senate approved.
On its own, the stimulus package is unlikely to fix the struggling economy because it does not address financial sector problems. As long as banks face losses and struggle to raise money, lending will be limited and so will economic growth.
The Obama administration is trying to address this problem on a separate track through a bank rescue program unveiled by Treasury Secretary Timothy Geithner on Tuesday.
WALL STREET UNIMPRESSED
But Wall Street reacted coolly, falling 382 points or 4.62 percent with traders saying many feared the new plan would not go far enough to resolve the financial crisis.
The House and Senate approved different mixes of income tax credits and tax incentives to rejuvenate the shattered housing market, as well as tens of billions of dollars for infrastructure projects, health care and education.
To win the votes in the Senate needed to pass the stimulus bill, senators cut from its package tens of billions of dollars including $16 billion for school construction and $40 billion in direct aid to states facing growing budget gaps.
Those changes lured three Republicans who were needed to advance the bill in the Senate, where Democrats have only 58 of the 60 votes needed to clear potential procedural hurdles.
But in a sign of tough negotiations ahead, Senator Susan Collins, a Republican who helped broker the initial compromise, said she could not again vote for the measure if it stayed at the current size.
"I'm not saying what's in, what's out. I'm just saying the bottom line must be under $800 billion," she told reporters after the Senate vote.
But Obama has already said he wants some education funds restored to the package and other Democrats have said they believe it should have more spending included.
"There will be an effort to make some changes in the education sectors," said Senator Richard Durbin, the No. 2 Democrat in the Senate. But he cautioned that Republicans were dead-set against federal money to build schools.
REPUBLICAN HELP NEEDED
He said that negotiators will need the approval of any new details by the three Senate Republicans who voted for the Senate bill: Collins, Senator Olympia Snowe of Maine and Senator Arlen Specter of Pennsylvania.
Senator Max Baucus, a Democrat who will participate in the Senate-House negotiations, said provisions to offer $50 billion in tax breaks for buying a home or a new car would probably stay in but be modified.
"The main thing is the final conference report is going to be very similar to the Senate bill because that's where the votes are," he said.
House Majority Leader Steny Hoyer, a Democrat, warned negotiations could stretch beyond Obama's weekend deadline and into the middle of next week. However, Pelosi told reporters she hoped they could finish this week.
Republicans have demanded the focus should be more on tax cuts than spending that they say will not boost the economy.
"It's entirely too large, entirely too untargeted and, more than anything else, it's not timely," said Senate Minority Leader Mitch McConnell.
Obama has rejected the Republican push for more tax cuts, arguing such policies under Republican President George W. Bush contributed to the current crisis.
(Additional reporting by Susan Cornwell, Donna Smith and Emily Kaiser; writing by Jeremy Pelofsky; editing by John O'Callaghan and Bill Trott)
