Senate Rejects Tax Hike, OKs Rules for U.S. Iraq Contracts

Shrugging off concern about growing budget deficits, the Senate on Thursday rejected a measure that would have raised taxes on the wealthiest Americans to cover the cost of occupying and rebuilding Iraq.

The amendment, which would have raised $87 billion by increasing the top income-tax rate from 35% to more than 38%, was rejected, 57 to 42, with most senators voting along party lines.

The debate underscored the conundrum facing Congress as it considers President Bush’s $87-billion budget request for operations in Iraq and Afghanistan. There is broad agreement that Congress should provide the money, but no consensus about whether or how to keep it from adding to the budget deficit.

In other action on the Iraq funding bill, the Senate approved an amendment that would make it harder for the government to award sole-source contracts for lucrative reconstruction work in Iraq, such as the controversial work awarded to Halliburton, Vice President Dick Cheney’s former company.

The Senate also rejected a Democratic proposal that would have transferred control of Iraq’s reconstruction from the Defense Department to the State Department -- a reflection of frustration with the Pentagon’s handling of the job. But the administration vehemently opposed the measure, which was rejected, 56 to 42.

California’s two Democratic senators, Barbara Boxer and Dianne Feinstein, were in the minority on both votes.

Although the tax increase amendment was easily defeated, the fact that Democrats were pushing it is a sign of their increased willingness to call for repealing some of the tax cuts enacted under Bush. For years, many Democrats have been reluctant to call for rolling back the cuts for fear of reviving their party’s image as a bastion of big-taxing liberals.

With deficits now expected to exceed $500 billion in 2004 and war costs ballooning, more Democrats -- in Congress and on the campaign trail -- have called for repealing all or part of the Bush tax cuts.

“We should not abandon our mission in Iraq,” said John F. Kerry (D-Mass.), a leading candidate for his party’s presidential nomination and a co-sponsor of the tax-hike amendment. “But we ought to demonstrate that whatever we spend in Iraq should be paid for with shared sacrifice.”

Republicans argued that it would be counterproductive to raise taxes at a time when the economy is struggling to recover. Only one Republican -- Lincoln Chafee of Rhode Island -- voted for the amendment.

The tax hike proposed by Kerry and Joseph R. Biden Jr. (D-Del.), would raise the $87 billion over six years and would affect only people whose income is $311,950 or greater. Kerry and Biden argued that upper-bracket taxpayers were best equipped to make a contribution to war costs, rather than adding to the deficit for future generations to absorb.

“We are at a place where responsibility dictates that we be rational and not ideological -- that we pay now,” said Biden.

The amendment on competitive bidding, which had bipartisan support and was passed by voice vote, would require reconstruction contracts to be awarded on a competitive basis unless Congress is notified why a sole-source contract was allowed.

Many Democrats have complained companies with close ties to the administration were being awarded lucrative contracts for work that could be done for less.

The proposal to shift control over Iraq’s reconstruction to the State Department was rejected on a strict party-line vote, despite sympathy for the idea among some Republicans. Patrick J. Leahy (D-Vt.) introduced the amendment, blaming the Pentagon for continued instability in postwar Iraq.

“They came in without a postwar plan, they miscalculated terribly, they put our soldiers in an untenable position,” he said.

He argued that the State Department’s civilian personnel were better equipped than the military to carry out the huge task of rebuilding Iraq.

But the administration -- including the State Department -- strongly opposed the shift. John W. Warner (R-Va.), chairman of the Armed Services Committee, argued that transferring reconstruction operations now would disrupt the momentum he said had been built.

Still, Warner said, “there will come a time” when it would make sense to hand off the job to the State Department -- after the Iraqi government is in place and the U.S. military is no longer needed to keep the peace.