Senate Limits Tax Cut, Triggers GOP Feud

Senate Republican leaders Friday unexpectedly pledged to limit President Bush’s tax cut to $350 billion, less than half the amount he had proposed to try to spur the economy.

The promise to cap the 11-year tax cut allowed them to win passage of a budget resolution for the coming fiscal year but blindsided more-conservative House Republicans, who have been clamoring for a bigger reduction.

Angry House GOP leaders held a news conference to accuse Senate Republicans of violating an agreement to postpone a final decision about the tax cut’s size.

The House Republicans had agreed to back down from their initial support for the entire $725-billion tax cut Bush wanted. But they expected their budget compromise with the Senate GOP leaders to leave open the chance of getting a final tax cut of $550 billion.

The dispute within the GOP’s congressional ranks provided a rancorous, divisive coda to a day that should have been a legislative triumph for Republicans. The Senate adopted the annual budget resolution on a cliffhanging 51-50 tally, with Vice President Dick Cheney casting the tiebreaking vote. The House adopted its budget resolution, 216 to 211, in the early morning hours Friday.

Bush issued a statement after the Senate vote reaffirming his commitment to getting a bigger tax cut.

”... We will work with the Congress to provide the greatest amount of tax relief to stimulate the economy,” Bush said.

But House Republicans’ sense of betrayal was so bitter that they said the Senate’s action threw the party into disarray just as Congress was preparing to advance several core elements of the president’s domestic agenda.

“This goes right to the heart of our ability to work together,” said House Majority Leader Tom DeLay (R-Texas). “This is pretty serious and has serious long-term implications.”

The budget resolution sets nonbinding spending and tax targets for the fiscal year that starts Oct. 1, including guidelines for how big a tax cut could be enacted. Conservative Republicans have been pressing to include a tax cut as close as possible to Bush’s $725-billion plan. But in recent weeks, moderate Republicans in the Senate have made clear that they support only a $350-billion reduction.

GOP leaders in the House and Senate on Thursday crafted an unorthodox compromise. It would have allowed the House to write a $550-billion tax cut bill, while the Senate stuck to $350 billion.

The two chambers would eventually have to agree on a common number, but advocates of the larger tax cut wanted to postpone that decision until later this year. They hoped Bush, his prestige enhanced by military success in Iraq and more focused on domestic issues, would help get a larger tax cut through the Senate.

But as Senate GOP leaders struggled Thursday night to round up the votes to pass the compromise, they ran into stalwart opposition from two key moderate Republicans, Sens. George Voinovich of Ohio and Olympia J. Snowe of Maine. They remained committed to a tax cut of no more than $350 billion, and wanted assurances the reduction eventually worked out between the House and Senate would not exceed that amount.

To win their votes, Sen. Charles E. Grassley (R-Iowa) promised Snowe and Voinovich that he would use his power as chairman of the Senate Finance Committee to block any tax cut beyond $350 billion -- not just in his committee and on the Senate floor, but in House-Senate negotiations over the final version, where Grassley will have a decisive vote. Grassley said he made that deal with the support of Senate Majority Leader Bill Frist (R-Tenn.) and Senate Budget Committee Chairman Don Nickles (R-Okla.).

That nailed down the crucial support from Snowe and Voinovich to pass the Senate version of the budget resolution.

Grassley announced his promise in a speech on the Senate floor Friday shortly before the budget was adopted.

“At the end of the day, the tax cut will not exceed $350 billion,” he said.

Grassley argued it was the only way to get enough votes to pass the resolution -- a political priority for Republicans because last year they harshly criticized Democrats, who then controlled the Senate, for failing to produce a budget resolution. Lawmakers wanted to complete the measure before leaving on a two-week spring recess.

“There would be no budget and no growth package without this agreement,” Grassley said. “That’s why the leadership supports my effort.”

A senior GOP aide later tried to distance Frist and Nickles from the deal, saying they knew about it but were “not party to it.” He said Frist called angry House GOP leaders after the Senate vote to assure them he would continue to push for the biggest tax cut possible.

Frist’s effort, however, did not prevent the House GOP leaders from venting their frustrations at their news conference, a rare public display of intraparty squabbling.

If the $350-billion cap on the tax cut sticks, it would be a potentially fatal setback for the cornerstone of Bush’s plan to stimulate the economy -- the elimination of taxes on dividend income, which would cost the Treasury $396 billion.

Grassley said his panel would be unlikely to include any dividend tax cut in the $350-billion package he envisions -- except in the unlikely event lawmakers could pay for it with offsetting tax increases in other areas. That would make it more likely that the Senate bill would focus instead on income tax relief for individuals -- such as an acceleration of scheduled rate cuts, as well as reductions for married couples and families with children.

House Republicans refused to concede defeat, saying Grassley’s promise was not enough to derail their hopes of winning a bigger tax cut to spark economic growth.

“He is only one man on one side of this debate,” DeLay said. “We will continue to press for tax relief that will stimulate more than some senator’s ego.”

House Speaker J. Dennis Hastert (R-Ill.) called Grassley “irrelevant” and put the onus on Frist to make good on their agreement.

“Our agreement was made with the Senate leadership, and they have the power to keep it,” Hastert said.

Rep. Deborah Pryce (R-Ohio) called on Frist to take the rare step of denying Grassley a seat on the House-Senate conference committee that will iron out differences between the two chambers’ tax bills.

“The goodwill of our relationship is at stake,” Pryce said. “I believe [Frist] will do the right thing.”

Grassley said House Republicans have to realize there are not enough votes in the Senate to pass a tax cut exceeding $350 billion.

“Every Republican has to understand that a $350-billion tax cut is better than no tax cut,” he said. “It’s not only better; it’s a real big victory for the president.”

The razor-thin Senate vote for the budget resolution underscored how little political maneuvering exists in the chamber. Only one Democrat, Zell Miller of Georgia, joined 49 Republicans and Cheney in supporting the budget.

Voting against it were 47 Democrats, one independent and two Republicans -- Lincoln Chafee of Rhode Island and John McCain of Arizona.

Almost lost in the controversy are the resolution’s core provisions. The budget’s $2.2-trillion spending target represents a 4.3% increase over the current year, not including war costs.

The budget projects deficits for the next eight years, with balance not restored until 2012. Deficits would grow to $385 billion in 2004, and then gradually decline.