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Last Updated:  Wednesday, 26 March, 2003, 21:38 GMT
Senate reverses Bush tax cuts

By Steve Schifferes
BBC News Online in Washington

House Speaker Dennis Hastert (left) with President George W Bush
Speaker Hastert (left) made the budget a test of patriotism
In a surprising reversal, the Senate has reduced the size of proposed tax cuts by 50%.

The plan to cut taxes by $726bn over the next 10 years is the centrepiece of the Bush administration's domestic agenda.

The president believes it is crucial to create jobs and boost the flagging US economy, but critics say it will add to the surging US budget deficit, which is already projected to be over $300bn this year.

On Friday, a coalition of moderate Republicans and Democrats lost a vote to reduce that tax cut by $360bn, in order to limit the size of future deficits.

But on Tuesday the same group tried again, and won by a vote of 51-48.

One of the rebels, moderate Republican Senator George Voinovich, said that " all of us realize that this is a long-term commitment that we're making to bring stability to that region of the world, and it's going to cost some money".

He was joined by two northern Republicans Olympia Snowe of Maine and Lincoln Chafee of Rhode Island.

And on Wednesday the Senate upheld that vote in a series of procedural resolutions.

"We made an irresponsible budget a little more responsible," said Senate Minority Leader Tom Daschle.

Further battles

That vote, in the context of the Senate consideration of the $2.2 trillion 2004 budget, may not be the last word on the subject.

With Republican leaders urging their supporters not to undermine Mr Bush while a war was going on, the House of Representatives last week passed Mr Bush's plan intact, by a narrow 215-212 majority.

Republicans are expected to try and remove the Senate's provision when the bill goes to the conference stage, where the differences between the two branches of Congress are reconciled.

Mr Bush believes that carrying on with tax cuts is vital for his political success.

It was his father's failure to carry through his pledge not to raise taxes, he believes, that dealt a fatal blow to his re-election campaign in 1992, despite his victory in the first Gulf War.

War bill due

One factor influencing the vote was the $75bn war bill which Mr Bush sent to Congress on Tuesday.

That will increase the deficit to $400bn this year - and many believe there is more war spending to come.

Some fiscal conservatives said that the true cost of the war could be $100bn per year for the next several years.

That could put a big dent in future government deficits, and many moderates argued that the American people should help pay for the cost of the war.

And the non-partisan Congressional Budget Office has also said that the tax cuts would not reduce the budget deficit by stimulating growth.

"Taken altogether, the (tax cut) proposals would provide a relatively small impetus in an economy the size of the United States," stated the report, delivered by CBO Director Douglas Holtz-Eakin, a recent Republican appointment.

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