Senate slashes tax relief proposal


WASHINGTON - The Senate dealt a setback to President Bush's economic agenda yesterday, voting to slash his $726 billion tax-cut plan by more than half, with Democrats joining Republican moderates in arguing that the nation could ill afford a tax cut as large as Bush wants.

The unexpected action came just days after the Senate had defeated a similar effort to scale back Bush's proposed tax cut to $350 billion.

The 51-48 vote occurred as the Senate prepared today to pass a $2.2 trillion budget for 2004 that projects deficits approaching $330 billion next year, without even accounting for the cost of the war in Iraq. Earlier yesterday, Bush sent Congress a request for a nearly $75 billion supplemental spending bill to pay for the first six months of the war, the first stages of its aftermath and homeland security.

The Senate's action was a striking victory for Democrats and a small coalition of Republicans who have been trying to find a way to shrink Bush's tax cuts in light of mounting deficits, an uncertain economic outlook and the chance that the war could make both worse.

"This was a great victory," said Senate Minority Leader Tom Daschle, a South Dakota Democrat. "We made a very irresponsible budget a little more responsible by cutting the tax cut."

Republicans were considering a series of efforts to restore portions of the tax cut to its original size before passing the budget. But for now, the vote puts the Senate on record opposing Bush's plan.

The House Democratic whip, Rep. Steny H. Hoyer of Southern Maryland, declared the Senate vote "the death knell for the administration's ill-conceived tax cut plan."

The decisive battle, however, will be waged in a House-Senate conference beginning later this week. Leaders will work to reconcile a House budget that contains Bush's entire tax-cut plan with a Senate budget that now proposes much smaller tax relief - $350 billion.

By a thin margin last week, House Republican leaders pushed through a budget measure that kept intact all of Bush's tax-cutting plans, including the $726 billion "growth package" and a further $625 billion in tax cuts over the next 10 years. Together, they total $1.4 trillion.

"We held basically to the president's budget - at least to the president's principles - and we're going to defend the president's principles when we get to conference," said House Majority Leader Tom DeLay, a Texas Republican.

The pivotal action came when the Senate passed an amendment by Sen. John B. Breaux, a Louisiana Democrat, to shrink the tax cut and use the money to shore up Social Security.

The vote was 51-48. Three moderate Republicans - Sens. Lincoln D. Chafee of Rhode Island, Olympia J. Snowe of Maine and George V. Voinovich of Ohio - joined 47 Democrats and one independent, Sen. James M. Jeffords of Vermont, in voting for the amendment. The 47 Democrats included Sens. Paul S. Sarbanes and Barbara A. Mikulski of Maryland. One Democrat, Sen. Zell Miller of Georgia, did not vote.

The outcome was a reversal from last week, when a coalition of Democratic and Republican moderates fell just short of passing a similar amendment - one that would have used the savings to pay down the national debt, rather than to bolster Social Security. Though Republican support was crucial, it was the backing of one key Democrat - Sen. Ernest F. Hollings of South Carolina - that turned the tide yesterday.

Hollings had refused Friday to back the effort to reduce the tax cut by more than half. He, like some other Democrats, argued then that the Senate should eliminate all tax cuts from the budget. But Hollings said one of his "main concerns" was protecting Social Security.

Republicans decried yesterday's vote, arguing that slashing the tax cut would hurt the economy at a critical period.

"It would cut the growth out of the growth package," said Sen. Don Nickles, the Oklahoma Republican who chairs the Budget Committee. "We need to be growing our economy. Our economy is really going through a difficult time."

Democrats and Republicans who favor smaller tax cuts said the change would do just the opposite, turning back an excessively large proposal in favor of a more prudent compromise.

"We're at war, and the deficit continues to grow," said Montana Sen. Max Baucus, the senior Democrat on the Finance Committee. "This is not a time for massive tax cuts or runaway spending. With today's vote, we've reached a positive middle ground."

Said Snowe: "This is an important vote that positions the Senate to support a smaller-size - and right-sized - growth package."

The passage of the amendment marked the second time in the past week that senators have acted to scale back Bush's tax cut. The Senate voted narrowly Friday to shave $100 billion off the package and to use it to pay for the war in Iraq - another vote that Republican leaders hope to reverse in a conference committee.

But their task will be complicated by Bush's submission to Congress of the wartime supplemental bill. Republicans will be in the delicate position of fighting to restore Bush's tax cut at the same time that they are approving vast new funding for the war.

Lawmakers are moving quickly on the supplemental spending measure. House action is possible next week, and congressional leaders hope to complete the bill by April 11, when Congress leaves town for a two-week break.

Rep. C.W. Bill Young, a Florida Republican and chairman of the Appropriations Committee, said his panel "will carefully examine and vet the request." Even some Republicans say the Bush request seeks far too much authority for the administration to spend money as it sees fit, without consultation with Congress.

Bush requested $62.6 billion for military operations in Iraq; $8 billion for relief and reconstruction, including $5 billion for aid to U.S. allies affected by the war; and $4.3 billion for homeland security, including $2 billion in grants for state and local governments. He sought broad authority to shift the money among government accounts as the war requires and warned lawmakers against attaching their own items to the bill.

"One thing is for certain: Business as usual on Capitol Hill can't go on during this time of war," Bush said yesterday at the Pentagon.

"The supplemental should not be viewed as an opportunity to add spending that is unrelated, unwise and unnecessary," he said. "Every dollar we spend must serve the interests of our nation, and the interests of our nation in this supplemental is to win this war and to be able to keep the peace."

DeLay said the discretion Bush has sought to allocate funding as he sees fit could be "highly controversial."

"The Congress has always balked at giving too much flexibility," DeLay said. "It is our responsibility to watch the purse, and we have a very workable process of reprogramming that has not gotten in the way of any administration's ability to conduct a war."

Democrats say they support sending the Pentagon whatever resources it needs to wage war in Iraq, but they are asking for far more money for domestic anti-terrorism efforts.

"There is not enough in the administration's request to adequately protect us on the home-front, and I think we need to do more," said Wisconsin Rep. David R. Obey, the senior Democrat on the Appropriations Committee.

Lawmakers on both sides of the Capitol also said they would push to include an emergency relief package for the airline industry in the supplemental spending measure. Congressional leaders said they would decide in the coming days whether such aid belongs in the supplemental spending measure or in a separate bill.

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