GOP cuts deal on Bush tax cut

WASHINGTON, April 11 (UPI) -- Senate Republicans on Capitol Hill, worried about a rising federal deficit and war costs, agreed to hold President George W. Bush's tax-cut package to no more than $350 billion in return for support of next year's federal budget request.

Sen. Charles E. Grassley, R-Iowa, chairman of the Senate Finance Committee, promised Republican moderates that the tax-cut bill would not include more than $350 billion, half of the $726 billion Bush had asked Congress to provide as a stimulus for the still-sagging U.S. economy.

In return, moderates pledged to support the $2.2 trillion federal budget plan. The U.S. House of Representatives voted 216-211 to approve the budget early Friday.

The agreement seals weeks of haggling between the House of Representatives and the Senate. The House last month approved the $726 billion tax cut the White House wanted, with a provision allowing lawmakers to reduce that number to $550 billion. The Senate agreement may force House members to make that figure smaller.

GOP moderates also wanted to see some funding for some domestic programs restored. The agreement replaced money for education, Medicare and public health.

Bush met last week at the White House with a group of Wall Street economists about the tax-cut proposal. The appearance of the private sector financiers signaled that Bush continues to be troubled by the sagging state of the economy. Unemployment remained at 5.8 percent in February, up from 5.7 percent in January. The Conference Board's Consumer Confidence Index declined sharply to 62.5 points in March, down 2.3 points from 64.8 in February.

The president's growth plan calls for accelerating the 2001 tax rate reductions and making them retroactive to Jan. 1, 2003. It reduces the marriage penalty in 2003 rather than 2008 and raises the child tax credit from $600 to $1,000 this year instead of in 2010.

The White House last week commended Congress for moving the budget process along, but said the votes in the conference committee would set the dollar amount for the tax cut. U.S. Treasury Secretary John Snow expressed confidence the conference committee's final draft would be in the administration's favor, saying that they had the support of the House and 48 votes in the Senate.

Key in the negotiations was Sen. Olympia Snowe, R-Maine, who said that she along with Sen. George V. Voinovich, R-Ohio, secured the commitment of the Senate's tax conference committee that the tax cuts in the conference report would not exceed $350 billion.

"This commitment achieves all of the goals Senator Voinovich and I have been working for these past six weeks, as we have secured passage of a budget to impose discipline on our federal spending for the coming fiscal year, and provided funds for a strong, reasonably-sized economic stimulus package that can create jobs and opportunities in the short term," Snowe said.

Republican moderates wanted to see the return of a number of domestic priorities that had been slashed from the budget to help pay war costs and as tax revenues have fallen.

Snowe, a member of the Senate Finance Committee which will write the tax package, said the tax cut would be a reasonably sized package that would spur growth without ballooning federal deficits. Snowe noted that she and Voinovich sealed their deal with Grassley with a handshake after reaching agreement late Thursday evening.

The White House acknowledged Friday that it would not gain approval for its full tax-cut proposal. White House press secretary Ari Fleischer said that there were still ways "within the existing smaller number, to accomplish the objectives the president sought, still standing by each of the provisions that the president proposed."

Fleischer seemed to indicate, however, that Bush would still fight for his dividend exclusion provision abolishing taxation of stockholder dividends.

"The dividend tax plan must be included. It means the acceleration of the rate cuts must be included. It means the child credit, the AMT relief, all the provisions that the president pronounced he was in favor of, were decided upon because of their benefit to an economy that needs help so people find work. And the president has not retreated on that," Fleischer said Friday.