Critical Votes Loom For Hill Republicans

Medicaid will be the largest target. Even with the cuts, the program would grow from $184 billion this year to $250 billion, as Medicaid rosters swell with population growth and the working poor are dropped from employer-provided health plans. The budget resolution mandated that the Senate Finance Committee produce legislation that would carve $10 billion out of entitlement programs under its jurisdiction.

Finance Committee Chairman Charles E. Grassley (R-Iowa) had hoped to find all $10 billion from Medicaid, but committee and Senate leadership aides say divisions in the panel may force him to lower that Medicaid target. Instead, some savings will have to come from Medicare and welfare programs.

Record high gasoline prices should ease passage of legislation to open Alaska's Arctic wilderness to oil drilling, a move that environmentalists have thwarted for decades.

"Timing's everything in this town," said a senior Senate GOP aide, who spoke on the condition of anonymity because the proposals have not been finalized.

But timing will make other proposals far more difficult, aides conceded. Cuts in farm price supports would come as farmers in Illinois, Missouri and parts of Iowa cope with drought. Senate aides say they can find $7 billion in savings from federal student loans by squeezing the banks that act as middlemen. But with students just returning to school, the timing of the proposal will feed into Democratic attacks.

"For the student, this shouldn't feel like anything," the senior Senate aide said. But, he conceded, "This one's going to cause some consternation."

The increase in premium payments to the Pension Benefit Guaranty Corp. is strongly opposed by business interests that maintain the move could prompt companies to drop traditional pension plans rather than face the added cost.

Democrats intend to make the Republicans squirm, especially since the sixth tax cut in five years will be moving simultaneously.

"These [spending] cuts are deeply misguided and are only needed to make a partial down payment on the deep tax cuts coming," said Thomas S. Kahn, Democratic staff director of the House Budget Committee.

The cost of the tax cut measure must total $70 billion. But Grassley hopes to craft legislation that would cut taxes by $90 billion over five years, while closing enough tax loopholes to bring the net cost down to the $70 billion price tag that can pass the Senate without a filibuster.

Under Grassley's proposal, the deep cuts in the tax rates on dividends and capital gains, approved in 2003, would be extended through 2010 from their expiration date of 2008. A tax deduction for college tuition, which is set to expire this year, would also be extended through 2010, as would a tax incentive for low-income savers. The package would also include a one-year measure to slow the reach of the alternative minimum tax, a parallel income tax designed to ensure the affluent pay taxes but which is increasingly affecting the middle class.

A senior GOP tax aide said $20 billion in tax loophole closures should blunt Democratic charges that Republicans are cutting programs for the poor to pay for capital gains and dividend cuts for the rich.

But Democrats say that will be precisely the point they will try to drive home. "The Democrats will make very clear that there's really only one bill here," Kahn said.