Senate Slashes Bush Tax Cut Package

WASHINGTON – The Senate reversed itself Tuesday and voted to cut President Bush's proposed $726 billion tax cut in half, 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.

The vote was a major victory for Democrats and a handful of moderate Republicans. They say a tax cut of the magnitude Bush wants makes no sense at a time when federal deficits are expected to surge to record highs and when U.S. troops are in a war with Iraq.

The reversal for Bush came on the same day he formally asked Congress for $74.7 billion to pay the initial costs of the war and for other expenses in the war on terrorism.

Moderate Sen. John Breaux, D-La., a leader of the effort to shrink Bush's tax plan, said he won the pivotal votes by stipulating that money taken from Bush's tax cut would go toward revamping Social Security.

There currently is no program for overhauling Social Security, though lawmakers have talked for years about the insolvency it faces as the huge baby boom generation nears retirement age.

Concerns about financing the war also played into senators' changes of heart, Breaux said.

"What you're seeing is more concern than there was last week" about the war's cost, Breaux told reporters after the vote.

He also said the vote "signals there's not a lot of support for the dividend proposal."

That proposal, the biggest chunk of Bush's plan, has been defended by Republicans as a way to help companies invest more and boost their stock value and to help people who own stock. Democrats have attacked it as a boon to the wealthy.

At the White House, spokesman Ari Fleischer criticized the Senate's vote and said it might change if lawmakers revisit the issue.

"We'll see what the ultimate outcome is, if that vote is the final vote. They have many more to come," Fleischer said.

Fleischer said the money taken from the tax cut could be used for more spending, because there is no way to guarantee that the money would be used for Social Security.

"The president believes the most important thing to do is to provide growth for the economy," Fleischer said.

Moderate Republican Sens. Lincoln Chafee of Rhode Island, Olympia Snowe of Maine and George Voinovich of Ohio voted Tuesday to make the tax cut smaller. Snowe and Voinovich signed a letter with Breaux and Sen. Max Baucus, D-Mont., earlier this month saying they wanted a $350 billion tax reduction.

Sen. Zell Miller of Georgia, the only Democrat who supports Bush's full tax plan, was absent Tuesday.

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.

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 either to overhaul Social Security or reduce the deficit.

Both Chafee and deficit hawk Sen. Ernest Hollings, D-S.C., had voted against making the tax cut smaller last Friday. Both voted Tuesday to shrink the size of the proposed tax cut.

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.