House, Senate endorse budget plans that would allow tax increases, produce surpluses

WASHINGTON -- The Senate on Thursday rejected the idea of renewing many of President Bush's tax cuts as all three major presidential candidates interrupted their campaigns to cast their votes. The House approved a budget blueprint that would raise taxes by $683 billion over the next five years.

The Senate did embrace Bush reductions aimed at low-income workers, married couples and people with children.

The House budget plan would provide generous increases to domestic federal programs but still is designed to bring the government's budget back into the black by letting all of Bush's tax cuts expire at the end of 2010. That plan passed the House on a 212-207 vote with Republicans unanimously opposing it.

The Senate voted 99-1 to extend the cuts for some workers as well as couples and parents. Senators voted 52-47 to reject a move to extend tax cuts for middle- and higher-income taxpayers, investors and people inheriting businesses and big estates.

The votes were mostly symbolic, but they put senators in both parties on the record for when the tax cuts actually expire in three years.

Arizona GOP Sen. John McCain, Republican presidential nominee-in-waiting, voted for the full roster of Bush tax cuts. Rivals Hillary Clinton, D-N.Y., and Barack Obama, D-Ill., both voted against them.

The Senate was debating and voting into the night on a $3 trillion Democratic budget blueprint for 2009. The nonbinding plan envisions a balanced budget in four years and promises generous increases for many domestic programs, but achieves those goals only by assuming major tax increases when Bush's tax cuts expire.

Obama and Clinton both promise to reverse Bush's tax cuts for wealthier taxpayers, but the Democratic budget they'll be voting for would allow income tax rates to go up on individuals making as little as $31,850 and couples earning $63,700 or more.

Extension plan failed

Opponents of "pork barrel" projects expected to lose a late-night vote to ban such earmarks for a year, despite the endorsement of all three presidential candidates.

Across the Capitol, the House measure anticipates larger surpluses while allowing $683 billion worth of tax increases over five years with the expiration of Bush's tax cuts.

A Republican alternative that largely mirrored a plan by McCain to permanently extend Bush's tax cuts and eliminate the alternative minimum tax failed. It would have made room for the cuts by making big reductions in popular programs like Medicare, housing, community development and the Medicaid health care program for the poor and disabled.

Congress' annual budget debate involves a nonbinding budget resolution that sets the stage for subsequent bills affecting taxes, benefit programs such as Medicare, and the annual appropriations bills. Unless such follow-up legislation is passed, however, the budget debate has little real effect and is mostly about making statements about party priorities.

This is such a year. Congress rarely tackles difficult budget issues as elections loom, and a standoff with Bush means that Democrats may even take a pass on advancing the 12 annual appropriations bills.

The rival budget plans display the difficult trade-offs facing the next president, who must weigh attempting to balance the budget with tax cuts that expire at the end of 2010 and spending programs popular with Democrats and Republicans alike.

"The biggest issue in this campaign is going to be your taxes," Bush said Wednesday night at a GOP fundraiser. "I think the biggest issue in this campaign is which side of the political divide is going to let you keep your money, and which side is going to raise your taxes."

The first year of an administration is typically when heavy lifting on the budget is done, but each candidate's campaign plans seem to promise more than they can deliver. McCain's tax cuts would require applying a meat cleaver to spending, while the Democrats promise spending plans that would enlarge the deficit or require too-large tax increases.

The White House forecasts the deficit for the current year at $410 billion, a near record.

On Capitol Hill, Democrats trumpeted their plan for putting the budget back in surplus while also making investments in infrastructure, education, community development, clean energy and other programs. It also avoids $196 billion worth of Bush-proposed cuts to Medicare and the Medicaid health care program for the poor and disabled.

Democrats in the House and Senate are divided on taxes. The House budget plan assumes elimination of the full roster of Bush tax cuts.

In the Senate, however, Democrats offered an amendment to renew tax cuts including the 10 percent tax bracket on the first $7,825 of income for individuals, the $1,000 per child tax credit, and estate tax relief. But the tax plan offered by Baucus would eat up virtually all the planned surpluses while allowing income tax rates to bounce back to pre-Bush levels, as would taxes on dividends and capital gains on stock and real estate sales.

Under both Democratic plans, tax rates would increase by 3 percentage points for each of the 25 percent, 28 percent and 33 percent brackets. At present, the 25 percent bracket begins at $31,850 for individuals and $63,700 for married couples. The 35 percent bracket on incomes over $349,700 would jump to 39.6 percent.

Senate Republicans countered with an amendment that would extend income tax cuts and current rates on investments, but the move would mean the budget would stay in the red, producing deficits of about $130 billion in 2012 and $160 billion in 2013.

The Democratic plans would provide generous, greater-than-inflation increases for domestic agency budgets. They both endorse Bush's even more generous $36 billion, or 7 percent, increase for the core Pentagon budget.

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The bills are H. Con. Res. 312 and S. Con. Res. 70.

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On the Net:

House Budget Committee: http://budget.house.gov

Senate Budget Committee: http://budget.senate.gov