By Alan Fram
The Associated Press
Thursday, March 25, 2003; 2:55 PM

The Senate unexpectedly reversed itself Tuesday, voting to slash more than half of President Bush's proposed $726 billion tax cut and dealing a blow to the keystone of his economic recovery plan.

A week after refusing to do so, senators voted 51-48 to reduce the tax reduction's price tag to $350 billion through 2013. Bush has said his plan -- which would eliminate taxes on corporate dividends and reduce income taxes -- is needed to create jobs, boost investment and spur the slumbering economy.

Just Friday, the Senate voted 62-38 to reject a similar move to pare Bush's tax plan in half. That plan would have taken the additional money Bush wanted for tax cuts and used it for deficit reduction.

Both moderate Sen. Lincoln Chafee, R-R.I., and deficit hawk Sen. Ernest Hollings, D-S.C., had voted against making the tax cut smaller on that day.

But both voted Tuesday to shrink the size of the proposed tax cut. Tuesday's successful amendment was slightly different, saying it would take some funds that Bush wanted to use for the tax cut and use that money to either to overhaul Social Security or put toward deficit reduction.

The vote was a major victory for Democrats. These lawmakers — joined by some GOP moderates — have been arguing that a tax cut of the magnitude Bush wants makes no sense at a time when federal deficits are expected to surge to a record high and when U.S. troops are engaged in a war with Iraq.

It came on the same day that Bush formally sent Congress his request for $74.7 billion to pay the initial costs of the war and for other expenses in the war on terrorism.

Republicans have said that the cuts are needed to stimulate the economy.

“It would cut the growth out of the growth package,” Senate Budget Committee Chairman Don Nickles, R-Okla., pleaded before the vote. “We need to be growing our economy.”

The setback for Bush came a day before the Senate planned to vote final passage on a $2.2 trillion budget blueprint for next year.

That outline originally provided for $726 billion in tax reductions through 2013 — the full figure requested by Bush. Last week, $100 billion was taken out of it to pay for the costs of war with Iraq, and earlier Tuesday another $13 billion had been diverted to finance enhanced veterans’ benefits.

The budget document maps Congress’ overall tax and spending plans, which are put into effect by other bills later in the year.

An effort by Republicans to try restoring the tax cut’s size was possible before the Senate completed its budget.

If the Senate does not revisit the tax figure by then, it would probably be increased somewhat during House-Senate bargaining over the budget outline.

The House version, approved last Friday, includes Bush’s full $726 billion in tax reductions.