Senate votes to cut Bush’s $726 billion tax cut in half

WASHINGTON – The Senate voted Tuesday to slash President Bush’s proposed $726 billion tax-cutting package in half, handing the president a defeat on the foundation of his plan to awaken the nation’s slumbering economy.

The vote to shrink the tax reduction to $350 billion through 2013 was a major coup for Democrats. Joined by a handful of moderate Republicans, including Sen. Olympia Snowe of Maine, they have been trying to shoot down the president’s proposed tax cuts or make them smaller, arguing they make no sense with an expensive war with Iraq under way and federal deficits expected to soar to new records.

Even as signs have emerged about public concern over the war, polls show Bush continues to have strong support from voters for his performance as president. Even so, Tuesday’s vote underlined that his popularity has not cowed Democratic rivals from challenging his domestic policies.

The Senate’s 51-48 vote came the same day Bush formally asked Congress to rush him $74.7 billion to pay for the initial costs of the Iraqi war and other expenses of the U.S. war against terrorism.

Members of both parties said they expect the price tag of Bush’s war package to grow by billions before congressional approval. With the war spending likely to push this year’s federal deficit toward $400 billion or beyond, Democrats and moderate Republicans were emboldened to push their amendment to make the tax cut smaller.

“What you’re seeing is more concern than there was last week” about the war’s costs, said Sen. John Breaux, D-La., a sponsor of the drive to reduce Bush’s tax cut.

Last Friday, the Senate rejected a similar effort to slice Bush’s tax plan to $350 billion. That measure had proposed using the difference to reduce the deficit, while Tuesday’s proposal would use the money to buttress Social Security or for deficit reduction.

There is no program for overhauling Social Security, which faces huge fiscal problems with the approaching retirement of baby boomers. But there is a huge political imperative to be seen as voting to strengthen the program.

“For this effort, the second time’s a charm, and I am pleased we were able to secure additional support by adjusting this amendment to support Social Security,” said Snowe, who was among the leaders of the drive to reduce the size of the tax cut.

The pivotal vote was cast by Sen. Ernest Hollings, D-S.C., a deficit hawk who opposed last week’s effort to reduce the tax cut. He said he voted yes Tuesday because the effort could help Social Security.

Sens. Snowe, George Voinovich of Ohio and Lincoln Chafee of Rhode Island were the only Republicans to join all voting Democrats to reduce the tax cut.

“The global uncertainties have cast a dark shadow over a domestic economy that was already on shaky ground even before September 11th catapulted our economy deeper into recession,” said Snowe.

Her office said the reduction in the tax cut would save Maine about $189 million over two years. That is the amount that would be lost in state tax revenues if the state conformed to Bush’s proposed federal tax cuts.

Bush’s tax plan would eliminate levies individuals pay on corporate dividends and accelerate already enacted income-tax cuts. Democrats say it is a boon to the rich, while Republicans say it would increase business investment and create jobs.

“It would cut the growth out of the growth package,” Senate Budget Committee Chairman Don Nickles, R-Okla., said of the effort to slash the tax cut.

Tuesday’s vote came on an amendment to the $2.2 trillion budget for next year. Republicans considered proposing amendments that would pump up the size of the tax package before the Senate completes its budget work Wednesday.

The House approved its own budget last Friday encompassing the full $726 billion package that Bush wants.

The two chambers will have to compromise on a tax number when writing a final budget. Congress’ budget sets overall revenue and spending limits, but actual changes in taxes or expenditures would be made in separate legislation later this year.

Meanwhile, lawmakers examining Bush’s proposal to begin paying for the war and its aftermath predicted its price would grow. Leading candidates for extra money include aid to local emergency workers and other so-called first responders, and assistance to the financially ailing airline industry, said legislators of both parties.

“He’s in the ballpark, give or take 5 or 10 percent,” Senate Appropriations Committee Chairman Ted Stevens, R-Alaska, said of Bush’s request.

That estimate would work out to as much as another $7.5 billion. Bush’s proposal is for the remaining six months of the government’s budget year.

Democrats said Bush’s plan would shortchange domestic security efforts and all but ignored an expected U.S. role in rebuilding and keeping peace in postwar Iraq.

“You ain’t seen nothing yet in terms of costs that will be coming at us,” said Rep. David Obey, D-Wis.

Top Republicans said they would try completing the spending package by their Easter break starting April 11 – an amazingly fast schedule for Congress, which usually takes months to work on bills labeled as urgent. Hearings were scheduled for this week, and both the House and Senate contemplated votes on initial versions of the bill next week.