Senate rejects tax cut limitations GOP heads off drive by Democrats, moderates to restrict future cuts

WASHINGTON – By the narrowest of margins, the Senate protected one of President Bush’s top priorities on Wednesday by rejecting a drive by Democrats and moderate Republicans to make it tougher to approve future tax cuts.

The 50-50 vote – one shy of the majority needed – averted a major headache for congressional leaders and avoided a replay of the embarrassing setback they suffered a year ago.

Then, the Republican-run Congress failed to complete a budget because the Senate approved the tax-cut limitations and the more conservative House refused to go along.

The margin, though, underscored the restiveness among GOP moderates over reducing taxes even as the dismal fiscal situation has prompted Republicans to propose cutting Medicaid, education and other programs.

It also signaled that GOP leaders will have little margin for error in trying to pass tax-cut legislation later this year.

“They have become openly hostile to balancing the budget,” a sponsor of the tax curbs, Sen. Russell Feingold, D-Wis., said of GOP leaders. “Openly hostile to anything that gets in the way of tax cuts, regardless of what the consequences are for our budget or the economy. That’s a sad moment.”

But with Republicans winning four extra seats in last November’s election, GOP leaders prevailed. The key was the appeal of tax cuts, which have become a paramount goal of the party in times of deficits or surpluses, recession or prosperity.

Senate Finance Committee Chairman Charles Grassley, R-Iowa, said the provision was “a stealth tax increase” because it would make it harder to keep Bush tax cuts enacted since 2001 from expiring.

The provision “unwisely ignores the bipartisan will to maintain current tax relief,” Grassley said.

The vote was part of the Senate’s work on a nearly $2.6 trillion budget for next year. In other roll calls highlighting spending pressures, senators voted to shift extra money to veterans, schools and biomedical research at the National Institutes of Health.

The House began debate on a similar budget. GOP leaders there removed the last hurdle to final passage by striking a deal with conservatives to allow procedural votes to kill spending bills that exceed budget limits.

Each chamber hoped to finish its work by week’s end.

Both budgets follow Bush’s lead in cutting domestic programs and boosting defense and domestic anti-terrorism programs, while slowly reducing federal deficits.

Bush has proposed $100 billion in tax cuts over the next five years. The Senate’s budget would allow $70 billion, while the House budget seeks $106 billion.

Among the expiring tax breaks Republicans would like to extend this year are levies on capital gains, corporate dividends and state and local taxes.

Congress’ budget sets tax and spending targets. It leaves specific decisions about changing revenues and spending and actual changes in law for later legislation.

The proposal defeated Wednesday required that tax reductions or increased spending for benefit programs like Medicare be paid for with spending cuts or revenue increases. The requirement could be waived if 60 of the 100 senators voted to do so, a difficult hurdle.

Republicans control the Senate by 55-44, plus a Democratic-leaning independent.

Last year, four GOP moderates joined Democrats in insisting on the tax-cut restrictions: Sens. Lincoln Chafee of Rhode Island, Olympia Snowe and Susan Collins of Maine, and John McCain of Arizona. They were joined this year by Sen. George Voinovich, R-Ohio, but fell just short.

Under President George H.W. Bush, Congress initially enacted the requirement to pay for tax cuts and benefit increases in 1990. The rule expired in 2002, just as a string of four straight annual federal surpluses was ending.

Though its fate was less certain, Senate aides also expected a second, similar effort to be defeated.

It would erase language in the budget protecting later tax cut bills from filibusters – efforts to kill legislation that take 60 votes to head off.