WASHINGTON —  The Senate (search) voted Thursday to strip all proposed Medicaid (search) cuts from the $2.6 trillion budget for next year, killing the heart of the plan's deficit reduction and dealing an embarrassing setback to President Bush (search) and Republican leaders.

The amendment, whose chief sponsor was moderate Sen. Gordon Smith, R-Ore., was approved 52-48 after days of heavy lobbying by both sides. It was widely seen as a test of the GOP-run Congress' taste for making even moderate reductions in popular benefit programs that consume two-thirds of the budget and are growing rapidly, even at a time of record federal deficits.

The Medicaid cuts could still be revived when the House and Senate try writing a compromise budget next month. The more conservative House was voting Thursday on a similar budget that would make way for up to $20 billion in Medicaid savings.