WASHINGTON – President Bush said he saw progress in Congress on his tax cut plans Tuesday as a House committee passed a scaled-back version of his $726 billion reduction aimed at triggering economic expansion.

The House Ways and Means Committee voted 24-15 along party lines to approve a bill that would cut taxes $550 billion over the coming decade and reduce taxes on stock dividends and capital gains to 15 percent for most investors. The measure would reformulate the foundation of the White House plan, the elimination of taxes on dividends.

Tax writers in the Senate made a symbolic step toward the president by including a short-term dividend tax cut in the earliest version of its bill. It eliminates taxes on dividends for only one year but succeeds in making the bill more politically palatable to many Senate Republicans.

Bush, speaking to hundreds of supporters at the U.S. Chamber of Commerce, began to claim victory in the tax cut debate.

“Both parties, in both houses of Congress, now recognize that tax relief helps create jobs,” Bush said. “That’s important, that both houses understand that when somebody keeps more money, they’re likely to demand a good or a service, when they have more of their own money to spend.”

The tax bill under construction in the Senate still faces formidable hurdles, and Republicans backing the president’s formula have yet to line up their party behind a single plan.

Sen. Olympia Snowe, R-Maine, whose vote could make or break the tax bill in the Senate Finance Committee, said she could not support the package in its current form. “I do not believe this is a credible proposal,” she said.

Snowe opposes the type of dividend tax cut favored by conservative members, which gradually phases in the policy and lets it expire quickly to keep its costs down. She favors letting taxpayers exclude $1,000 of dividend income from taxation, a policy that would cover 88 percent of taxpayers.

Finance Committee Chairman Charles Grassley, R-Iowa, proposed making one-third of dividend income tax-free in 2003 and two-thirds tax-free in 2004. Dividends would become free from taxes in 2005, but revert to current rates of taxation in 2006. Dividends income is taxed like earned income at rates as high as 38.6 percent.

The dividend plan pushes the tax cut $65 billion over its $350 billion budget. Aides have identified $50 billion to $80 billion in new revenue that could offset the bill’s cost to the Treasury.

Other moderate Republicans signaled that the bill must include aid to the states.

“I am not issuing ultimatums, but I have made very clear to the leadership that I want to continue to work with them to ensure that the final package does contain fiscal relief to the states,” said Sen. Susan Collins, R-Maine. “There is no issue more important to me than fiscal relief to the states.”

Both Snowe and Collins called for increasing the federal government’s share of each state’s Medicaid costs and providing block grants for social services.