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Congress, Bush strike budget deal


WASHINGTON - With the help of some centrist Democrats, the White House and Congress struck a budget deal yesterday that would boost federal spending more than President Bush wanted and cut taxes less than he proposed but would give Bush most of what he pushed for.

While nonbinding, the annual budget blueprint, which both the House and Senate are expected to approve today, carries more weight than it has in some years because one party - the Republicans - controls the White House and Congress.

By winning the support of moderate Senate Democrats, Republican negotiators showed that they can achieve the blueprint's goals of a 5 percent increase in spending next year and $1.35 trillion in tax cuts over the next 11 years once Congress approves final tax and spending legislation later this year.

Bush, who had proposed to limit spending growth to 4 percent while cutting taxes by $1.6 trillion, thanked the lawmakers for what he said would be "the largest tax cut in a generation," accompanied by "reasonable levels of spending."

The House had earlier endorsed Bush's own tax and spending numbers. But the Senate was far more resistant; it approved a budget plan that would have reduced Bush's tax-cut proposal to $1.2 trillion and increased spending by 8 percent.

Democratic leaders complained that the compromise $1.35 trillion tax cut would still be too large to accommodate other priorities, such as a Medicare prescription drug benefit. They said they were pleased that Bush had been forced to scale back his original $1.6 trillion tax-cut plan but predicted that Republicans would seek ways to exceed the tax-cut limit in the final legislation.

"There is not a firm agreement in a bipartisan way on where we're going with this budget on spending or taxes," said Rep. Richard A. Gephardt, the House Democratic leader. "Until we have it, I think we're moving toward deficits and deficit spending."

Lawmakers in both parties have been skeptical about whether Congress would abide by a 5 percent increase in the programs they review annually and regularly infuse with new spending that is often geared to their home states.

"I suspect I'm going to have to remain diligent over the next year to keep the spenders in check," Bush said this week, hinting that he would veto spending bills that violate the limits. "That's a good job for the chief executive officer."

The agreement sets the parameters for the $1.97 trillion federal budget for the fiscal year beginning Oct. 1. It also sets up a procedure for enacting up to $1.35 trillion in tax cuts over the next 11 years without the threat of a filibuster in the Senate, which is divided 50-50 along party lines.

Though Congress is likely to spend weeks or months haggling over the details, Mitchell E. Daniels Jr., the White House budget director, asserted that Bush had won "the best deal any president's gotten in a long, long time."

The combination of steep tax cuts with new spending is made possible by a $5.6 trillion budget surplus that is projected over the next decade. Critics of the budget deal complain that Republicans are counting on even larger surplus projections to provide for further spending in such areas as missile defense and for tax cuts not included in the Bush package.

"They are literally betting the ranch that the surplus will grow so there will be enough money for defense, health care and all the things that are out there," said Rep. Charles W. Stenholm, a conservative Texas Democrat who argued that more money should be set aside to pay down the national debt. "If that surplus should head south, they're going to have an interesting time delivering."

Some conservative Republicans complained that the Senate's demand for greater spending had forced too high a spending figure into the compromise budget deal. Among them was Rep. Tom Tancredo, a Colorado Republican who said he would vote against the budget blueprint.

"That place is just a nuthouse when it comes to spending," he said of the Senate. "I cannot get over their lack of fiscal discipline."

Yesterday's deal came after the White House decided to deal with centrist Democrats because it could not persuade all 50 Senate Republicans to back Bush's proposal intact, as the House had.

"It couldn't have been done without the cooperation and work of some of our Democrat friends," Bush said at a White House session that included Sens. John B. Breaux of Louisiana, Ben Nelson of Nebraska and Zell Miller of Georgia.

"It's an agreement that makes a lot of sense," Bush said in announcing the budget deal at the White House, sitting among Republican leaders and six moderate Democrats who support the package. "In the agreement is the largest tax cut in a generation and reasonable levels of spending."

Approval of the budget blueprint today by both houses will formally launch the process of working out the details. Tax cuts are likely to come first.

The agreement calls for a first round of cuts to take place this year and next in hopes that they will help jump-start the sluggish economy. Up to $100 billion of the $1.35 trillion in tax cuts has been designated for that purpose. Lawmakers are likely to direct that money toward a reduction in income tax rates that could be felt quickly through lower withholding of taxes from paychecks.

A further $1.25 trillion in cuts would be phased in over the next decade. The centerpiece is likely to be Bush's proposal for an income rate reduction that would affect every tax bracket. Also expected to be included are a doubling of the child-care credit, a reduction in the "marriage penalty" that affects many dual-income couples and a phase-out of the estate tax.

"It's going to be very difficult" to get those items to fit in a package that has been shrunk by almost one-fourth from the $1.6 trillion that Bush proposed, said Senate Finance Committee Chairman Charles E. Grassley of Iowa.

What's more, there will be pressure to include additional items, such as a measure - overwhelmingly approved by the House yesterday - offering $51 billion worth of tax incentives over 10 years to encourage savings in IRAs, 401(k) plans and other private retirement accounts.

House Majority Leader Dick Armey said he believes that the pension savings bill - sponsored by Baltimore Democrat Benjamin L. Cardin and Ohio Republican Rob Portman - should be included in the overall tax-cut package, calling it the second-most-important priority, behind a cut in income taxes.

Additional tax-cut proposals are expected to be offered after the president's package is enacted. But such individual bills would not have protection from Senate filibusters because they have not been endorsed as part of the budget agreement.

"It's very risky if you don't get in that first package," Cardin said.

The Associated Press contributed to this article.

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