Feb. 11 (Bloomberg) -- U.S. lawmakers agreed on a $789 billion economic stimulus plan that President Barack Obama said is urgently needed to keep the country from sliding into a deeper recession.

Following weeks of debate and negotiations in Washington, Senate Majority Leader Harry Reid told reporters today that lawmakers reached “middle ground” on a plan he said would create 3.5 million jobs. The House may vote on the plan as early as tomorrow. The Dow Jones Industrial Average rose 50.65 points, 0.6 percent, to 7,939.53.

“It is a jobs bill,” said Democratic Senator Ben Nelson of Nebraska, an architect of the compromise. “And today you might call us the jobs squad.” Nelson and several other senators had insisted that the stimulus plan total less than $800 billion.

Obama, who has pushed to have a bill on his desk by the Feb. 16 Presidents’ Day holiday, thanked lawmakers in a statement that said the plan will “get our economy back on track.” He cited Jim Owens, chief executive officer of Caterpillar Inc., as saying the spending and tax cuts would allow the company to rehire some laid-off employees.

Senate Finance Committee Chairman Max Baucus, a Montana Democrat, said, “The votes are there for passage.” He said about 35 percent of the plan consisted of tax cuts and the remainder would be government spending. The package is smaller than the $838 billion Senate bill and the $819 billion measure passed by the House last month.

‘Hung Tough’

“We hung tough” in the negotiations, said Senator Arlen Specter of Pennsylvania, one of three Republicans who helped pass the Senate version yesterday after forcing Democrats to agree to reductions.

House Speaker Nancy Pelosi of California said she was reassured by Reid that some of the money Democrats in her chamber sought for school construction were included as part of a stabilization fund for states. Republican Senator Susan Collins of Maine said that fund would total $54 billion.

During a meeting of the House-Senate conference committee held after the agreement was announced, Republican Representative Jerry Lewis of California complained that lawmakers didn’t have enough details on the plan.

Baucus said lawmakers scaled back Obama’s proposed payroll tax credit to $400 for individuals and $800 for families rather than the original proposal of $500 and $1,000. The senator said the plan includes an alternative minimum tax cut.

Business Tax Benefit

Negotiators all but eliminated the biggest tax cut for businesses, a provision that would let companies convert losses into tax refunds, Baucus said. He said the provision, which would have let companies claim an estimated $67.5 billion in tax refunds this year and next, was sacrificed to help keep the final package under $800 billion. A proposed $15,000 tax credit for homebuyers was reduced to $8,000, Baucus said.

Democratic Senator Barbara Mikulski of Maryland said her plan to aid the auto industry by letting car buyers take a tax write-off on their interest payments has been reduced to $2 billion from the original $11 billion. She said she didn’t have details.

The bill provides $59 billion in aid for unemployed workers in families, including $27 billion to extend unemployment benefits for 20 additional weeks in most states and 33 additional weeks in states with high unemployment rates. It also increases weekly benefits by $25.

Health Benefits

Also for the unemployed, the bill expands a federal subsidy to help jobless workers keep their health benefits by paying 60 percent of their premiums for nine months for married couples who earn under $250,000.

The bill authorizes a one-time $250 payment for senior citizens, disabled veterans and disabled people living on Social Security benefits.

It provides $90 billion for federal funds for Medicaid, the health insurance program for the poor, and $19 billion to facilitate the digitization of health records.

New York City Mayor Michael Bloomberg said the plan would preserve the jobs of 15,000 teachers threatened with layoffs and help fund city hospitals and Medicaid payments. Deputy Mayor Edward Skyler said other parts of the plan might help avoid a cut in the police department’s workforce below the current 36,000. The mayor is founder and majority owner of Bloomberg News parent Bloomberg LP.

Final negotiations over the plan began in earnest yesterday after the Senate passed its bill. Talks continued into the night and resumed this morning.

Nelson said the negotiations included Emanuel and the three Senate Republicans who voted with Democrats for that chamber’s plan: Specter, Collins and Maine Republican and Olympia Snowe.

“There’s nothing like a deadline to force people to give and take a little bit,” Baucus said.

To contact the reporters on this story: Brian Faler in Washington at bfaler@bloomberg.net; Ryan J. Donmoyer in Washington at rdonmoyer@bloomberg.net

Last Updated: February 11, 2009 19:07 EST