(Adds vote timing details in second paragraph)
By Richard Cowan and Susan Cornwell
WASHINGTON, Feb 12 (Reuters) - Democratic leaders in the U.S. Senate and House of Representatives on Thursday wrapped up a last minute tax cut and spending details in the $789 billion economic stimulus bill, setting votes for Friday by both chambers.
The House is scheduled to vote Friday morning and the Senate plans to follow in the evening, but that vote could take a few hours to accommodate a Democratic senator who has to return home after the death of a family member.
Both chambers are expected to approve it which would meet a deadline set by President Barack Obama to approve the emergency spending and tax cut package before the end of the upcoming holiday weekend.
The final package includes about $507 billion in spending and funds for social programs like Medicaid as well as $282 billion in tax cuts, less than Republicans had sought and which led most of them to oppose the final package.
Senator Judd Gregg, the New Hampshire Republican nominated by Obama to be commerce secretary, announced on Thursday he was withdrawing in part because of disagreements on the stimulus strategy.
In a statement, Gregg noted "irresolvable conflicts" with the Obama administration on the stimulus and other matters.
The bill's backers say the package -- a limited victory for the Democratic president, given the robust Republican opposition -- will create and save 3.5 million jobs in an economy that has seen massive job losses and is mired in recession.
Employment data released on Thursday showed the U.S. labor market remained on the ropes, highlighting the urgency of passing legislation. Although the number of workers filing new claims for unemployment benefits fell, it was by less than expected.
Obama has called for fast action on the stimulus to avoid economic "catastrophe" and wants to sign it into law within days. But when he does, it will be without the backing of most Republicans, who just three weeks into Obama's presidency have ignored his call for a more bipartisan spirit in Washington.
Most Republicans have urged bigger tax cuts as the salve for the economy and complained about government spending they said would not help.
AN EMERGENCY STOPGAP
The stimulus bill is essentially a stopgap to prevent the economy, in recession since December 2007, from spiraling further downward. Separately, the Obama administration is trying to strengthen financial institutions at the center of the economic morass.
While the bill would pump some quick funds into education and healthcare, it is a mere down payment on sweeping changes Obama campaigned on before his November election win.
The nonpartisan Congressional Budget Office said that "the macroeconomic impacts of any economic stimulus program are very uncertain." But the CBO, Congress' in-house budget analyst, said that "in the short run the stimulus legislation would raise GDP (Gross Domestic Product) and increase employment."
The package is split into 36 percent for tax cuts and 64 percent in spending and other provisions. Obama had called for a 40/60 split in his effort to jolt the economy.
Negotiators signed off on a compromise late on Wednesday, after talks between a small group of negotiators in the House and Senate to reconcile bills passed separately by the two chambers.
'NOT THE SMART APPROACH'
Republicans criticized the huge cost of government projects in the bill at a time when the U.S. budget deficit is already projected to top $1 trillion this year.
"In my view, and in the view of my Republican colleagues, this is not the smart approach," Senate Minority Leader Mitch McConnell said.
But Durbin said that without the emergency spending, the situation would only get worse -- and the deficit with it -- as government revenues fell in a contracting economy.
Recognizing all the added debt the emergency legislation would produce, the bill also increases the Treasury Department's borrowing authority to $12.1 trillion, up from the current limit of $11.3 trillion. Right now, the U.S. debt is over $10.7 trillion and inching closer to the existing limit.
Obama has spent the week selling the package to the U.S. public and at a factory owned by heavy equipment maker Caterpillar Inc., he said the company would be able to rehire some laid-off workers once the stimulus plan is approved.
"Passing this plan is an important step -- but it's just one step," Obama said. "It's only the beginning of what we're going to have to do to turn around our economy."
Under the compromise bill, negotiators agreed to narrow a tax credit for workers that would now total $400 for individuals and $800 for couples. An earlier version of the bill would have granted $500 and $1,000 respectively.
To help states facing growing budget shortfalls, the House had proposed $79 billion, while the Senate had agreed to $39 billion. They compromised at $54 billion, including some funds that could be used for modernizing schools.
Money for building schools was stripped out and congressional negotiators also severely cut back tax incentives aimed at boosting flagging home and car sales that were deemed too expensive. (Additional reporting by Jeremy Pelofsky and Donna Smith; Editing by Peter Cooney)