Senate Passes Budget Plan, Extending Bush Tax Breaks

By Lori Montgomery
Washington Post Staff Writer
Saturday, March 24, 2007

The Senate yesterday approved a $2.9 trillion budget blueprint that calls for raising the federal cigarette tax to pay for a massive expansion of the nation's health insurance program for children. It also authorizes big boosts in spending next year for public education and veterans' services.

The Democratic spending plan would extend some of President Bush's signature tax breaks for middle-class families past their 2010 expiration date, a modification pushed by moderate Democrats. It also promises to erase the federal deficit within five years, though Democratic leaders acknowledge that difficult decisions about tax policy still stand in the way of that goal.

"I don't assert that this is a perfect budget. If I had a totally free hand, I am certain it would be different," said the plan's chief author, Senate Budget Committee Chairman Kent Conrad (D-N.D.) "But at the end of the day . . . it is our obligation and our responsibility to put a budget in place to begin the difficult task of balancing the books while meeting the priority needs of our nation."

The two Maine Republicans, Olympia J. Snowe and Susan Collins, broke ranks to join Democrats and independent Joseph I. Lieberman (Conn.) in supporting the plan, which passed 52 to 47. A similar spending proposal is to be debated in the House next week.

A spokesman for Snowe said her support was motivated in part by the restoration of pay-as-you-go budget rules that prohibit new taxes and new spending from increasing the deficit, which stood at $248 billion last year. Those rules were allowed to expire at the beginning of the Bush administration, clearing the way for Republicans to push through more than $1 trillion in tax cuts that were not offset by spending cuts or tax increases.

Republicans, who lost control of Congress this year, argue that the rule all but guarantees big tax hikes as Democrats eventually permit most of the Bush tax cuts to expire and also look for revenue to replace the alternative minimum tax, which both Democrats and Republicans have vowed to overhaul or repeal.

"This bill is a classic Democratic tax-and-spend bill. That's all it is," said Sen. Judd Gregg of New Hampshire, the ranking Republican on the Budget Committee. "Bigger taxes, bigger spending, bigger debt, larger government, and as a practical matter it's not going to be a constructive event for us as a nation."

But strategists in both parties said Democrats will score political points for the 2008 election if they pass a spending plan that erases the deficit by 2012, and Democratic leaders in both chambers have made that a priority. The blueprint, which sets limits on spending and targets for revenue, does not have to be signed by the president, though the annual spending bills that implement that policy do require his signature.

Through four days of debate, Democrats beat back repeated attempts by Republicans to lock more tax cuts into the plan without specifying ways to cover the cost. Conrad won votes, sometimes close ones, on proposals to modify or repeal the estate tax and the alternative minimum tax and to exempt the Bush tax cuts from the pay-as-you-go rule. He condemned those proposals as "budget-busters."

On Wednesday, however, the Senate voted 97 to 1 for a measure by Sen. Max Baucus (D-Mont.) that would extend for two years some of the Bush tax cuts, including the expanded child tax credit, elimination of the marriage penalty and the new 10 percent tax bracket. To pay for that, Baucus calls for using surpluses that are only projections.

The yet-to-be-seen money also would cover about $15 billion of a proposed $50 billion expansion of children's health insurance, a sum that would increase funding for the program by 200 percent over the next five years. The rest of the cash would come from raising the nation's 39-cent-a-pack cigarette tax to as much as a $1. The Senate voted 59 to 40 yesterday in favor of that proposal, offered by Sen. Gordon Smith (R-Ore.), who called the vote "a victory for America's children."

The Senate plan contains $6 billion above Bush's request for public education and an extra $3.5 billion for veterans' services in the fiscal year that starts Oct. 1. All told, the Senate plan would increase spending on domestic programs by $18 billion, or 4 percent, over the president's request, and nearly 3 percent above current levels.

The blueprint rejects Bush's proposal to reduce the rate of growth in Medicare and Medicaid spending, which threaten to swamp the rest of the budget as the baby boom generation retires. Conrad said he and Gregg are working on a plan to bring lawmakers and administration officials together to work on a "bipartisan solution" to that problem.

Gregg nonetheless lamented that the blueprint "squanders the opportunity to address the fiscal tsunami" looming a few years down the road.

© 2007 The Washington Post Company