WASHINGTON (Reuters) - The government’s $700 billion bailout of the financial system may still be politically toxic, but for those who voted for the program, there is some good news: the taxpayer bill continues to drop.

U.S. Treasury Secretary Tim Geithner testifies before the Congressional Oversight Panel created to oversee the expenditure of the Troubled Asset Relief Program (TARP) on Capitol Hill in Washington June 22, 2010. REUTERS/Kevin Lamarque/Files

On Thursday, congressional scorekeepers projected the overall deficit impact of the Troubled Asset Relief Program -- or TARP -- will be about $66 billion.

That’s a big drop from the $109 billion estimate the Congressional Budget Office made earlier in the year, and a precipitous drop from the initial projection of $350 billion.

The shrinking bill could dilute the previously potent political attack that lawmakers who voted for the bailout were rewarding Wall Street greed while putting taxpayers at risk.

Three-term Republican Senator Bob Bennett of Utah, for example, who was defeated in a May primary contest, attributed part of the defeat to his vote in favor of the bailout.

David Kendall, an analyst at the centrist Washington think-tank Third Way, said the revised numbers could blunt some of the TARP criticism, but he warned that other political undercurrents will keep lawmakers’ TARP votes controversial.

“This doesn’t change the larger dynamic of this election that people are angry about the economy and want it to get better,” Kendall said.

TARP was enacted in the waning days of the Bush administration as the financial crisis exploded in 2008; it gave the government the authority to use $700 billion to prevent the collapse of the financial industry.

The Treasury Department used it to pump money into banks to unfreeze credit, and the Obama administration later used it to prop up U.S. automakers.

FINANCIAL REFORM, REPAYMENTS LOWER COST ESTIMATE

The Congressional Budget Office attributed its new, lower cost estimate in part to a provision in the Dodd-Frank financial regulatory overhaul law that prevents future spending out of the program, as well as to better returns on the money lent out to financial institutions and a revision to its estimate on how much the money given to automakers will cost the government.

The number could be revised even lower as more banks repay bailout money and as automakers continue to payback their loans.

The revised number did not include the eventual impact of General Motors’ planned initial public offering, which it announced on Wednesday, as part of its effort to free itself from the government and repay the roughly $50 billion it owes.

It has been largely expected that the any losses from TARP would mostly come from the bailouts of insurer AIG and the automakers, not necessarily from banks, many of which have already repaid taxpayer money.

The Treasury has not yet updated its $105 billion estimate for the TARP bill, but welcomed the CBO’s downward revision.

“While our estimates are more conservative, the trend is quite clear,” Treasury Assistant Secretary Herb Allison said in a statement. “The ultimate costs of TARP will be a fraction of what critics feared and the benefits to the economy were substantial.”

BANKS CHEER REVISED ESTIMATE

The rapidly dropping figure could also be a little boost for banks, many of which have noted that taxpayers are profiting as banks repay their TARP funds.

“The fact that the taxpayers are getting every penny back with interest shows that the program worked,” said Scott Talbott, chief of government affairs for the Financial Services Roundtable, an industry group for financial companies.

The dwindling cost estimate could also slow an effort to tax the industry to recoup TARP costs.

Earlier this year the Obama administration proposed a bank tax that would raise $90 billion to repay the cost of TARP but the proposal has gone nowhere in Congress in the face of stiff industry opposition.

Despite the waning momentum, there are still some strong advocates for the tax.

TARP’s deficit impact should not be the sole factor in whether banks get taxed, said Dean Baker, co-director of the left-leaning Center for Economic and Policy Research.

He argued the value of TARP to banks was far more than the dollar value of what was lent out by the government because the program prevented more turmoil in financial markets.

“It’s like saying we gave you water when you were in the desert and you paid us back when it was raining,” he said.