On a day that George W. Bush received two major endorsements, he found himself locked in the first serious policy dispute of the campaign with his major rival for the GOP nomination, Arizona Sen. John McCain.

Bush accused McCain of shortchanging the middle class on tax cuts, and McCain fired back that Bush's $483 billion, five-year plan would squander money that will be needed for Social Security on tax breaks for the well-to-do.

Under his plan, Bush said, a family of four in New Hampshire earning $50,000 would receive a tax cut of roughly $2,000 a year. McCain's plan, he said, would give that same family a cut of $200. He also said McCain doesn't do enough for people with lower incomes. "His plan doesn't address the people who live on the outskirts of poverty working hard to get to the middle class," Bush said.

McCain sharply disputed that assertion, saying that "60 percent of the benefits from Bush's tax cuts go to the wealthiest 10 percent of Americans, and that's not the kind of tax relief that Americans need." By contrast, McCain said, all of the benefits of his own, smaller plan would go to people in the bottom three-fifths of the income scale. "I'm not giving tax cuts for the rich," he said.

McCain said another "fundamental difference" is that the Texas governor would use "the entire surplus" projected for the next decade to finance tax cuts, whereas McCain would save most of it to extend the life of Social Security and Medicare and to pay down the national debt, and would reserve only the remaining fraction for tax cuts, some of which would be financed by "closing corporate welfare loopholes and eliminating wasteful spending."

McCain's tax plan, which is due to be amplified next week, would expand the 15 percent bottom bracket upward, end the "marriage penalty," provide relief for Social Security recipients who continue working and eliminate taxes on estates up to $5 million. McCain priced his plan at $500 billion over 10 years.

Continuing the thrust and parry, Bush spokesman Ari Fleischer accused McCain of pitting rich against poor. He said McCain "sounds a lot like Al Gore and the Democrats, and it would be very unfortunate if a Republican joined the Democrats in this class warfare."

The sharp exchange came as the two rivals campaigned in neighboring cities in New Hampshire, where polls show them locked in a close race for the first-in-the-nation primary on Feb. 1. And while the disagreement was not expressed in personal terms, it reflected a change for the two men, who have gone out of their way to compliment each other.

Bush was endorsed in New Hampshire this morning by Elizabeth Dole, who then traveled with him to Iowa, where Bush won the support of Sen. Charles E. Grassley, the state's longest-serving and most popular Republican.

At the time of the Iowa straw poll last August, Grassley was neutral. His endorsement has been the biggest remaining prize in Iowa politics before the Jan. 24 caucuses. "We need a principled president who can steer us in peace and prosperity here and abroad," Grassley said at an event in Davenport today. "George W. Bush never leads with his finger to the wind."

Exactly one year after she left the Red Cross to seek the Republican presidential nomination, Dole stood on the same stage with Bush, whose candidacy had overshadowed and eventually overwhelmed hers. She praised his conservative credentials, compared him to Ronald Reagan and vowed to work diligently to help build support for him among women, minorities and young voters.

"Today we rally to another western governor, just as bold in challenging the status quo, just as resolved to restore pride in our institutions, just as determined to be himself," she said to a few hundred people jammed into the C.R. Sparks Center in Bedford.

Although the Dole endorsement was not surprising, and even though most of Dole's paid campaign staff has gone to work for Bush in New Hampshire, the Bush campaign characterized it as a major coup.

"Elizabeth Dole brought many new faces and many voices into our party, and we're better off because of it," Bush said. Then, turning to Dole, he added: "You always said you are a lieutenant in the Reagan army; I'm glad to call you a general."

State Republican committeeman Tom Rath, a Bush adviser here, said Dole would add credibility to Bush's campaign, especially among women. "She is one of the few we've got [in the GOP] who has star quality," he said.

The Bush campaign was so determined to capitalize on the endorsement, it videotaped the morning event and cut it for commercials that began airing tonight on New Hampshire television.

At a news conference, Dole was asked if her husband, Robert J. Dole, agreed with her decision. "He is very supportive of my decision" was all she would say. Bush and Dole deflected questions about whether she would be his running mate, calling such considerations "premature."

Asked aboard his campaign bus between appearances in Concord and Salem about the Dole endorsement, McCain was a model of diplomacy. He said he felt nothing but "great admiration" for Elizabeth Dole and her husband. McCain said he had not spoken to either of them recently but said the decision was no surprise.

On another tax front, McCain reaffirmed that he was "adamant" about seeking a permament ban on any form of taxation on the Internet and said he would start ads on that issue in newspapers and on various Web sites. He said the temporary moratorium on Internet taxes had saved Americans $561 million on the estimated $11 billion of e-commerce during the holiday season. He vowed to "stop the government from using the Internet as just another excuse to raid your pocket."

Many governors have opposed a permanent ban on Internet taxes, claiming that the loss of sales tax revenue would knock a hole in their budgets. Bush has been ambivalent on a permanent ban, but McCain told reporters that the governors' position is "the height of foolishness. All of them are running surpluses."

McCain told reporters he believes he must finish first "or a very close second" in New Hampshire's leadoff primary on Feb. 1 to have a chance for the nomination. Recent polls in the state show him slightly ahead of Bush, but the race is regarded as a tossup by strategists in both camps.

CAPTION: Elizabeth Dole endorses the presidential candidacy of former rival George W. Bush in Bedford, N.H. She then traveled with him to Iowa.