US Congress in Bush budget fight

The US Democratic-led Senate has passed plans designed to balance the budget by 2012 in a direct challenge to President George W Bush's fiscal blueprint.

The Democratic plan would phase out tax cuts for the rich and keep spending programmes Mr Bush wants to trim.

The Senate vote followed a similar move by the House of Representatives, but the two plans must still be reconciled.

Mr Bush's $3 trillion (£1.5 trillion) budget plan would make most tax cuts permanent and curb domestic spending.

The House of Representatives passed the Democratic budget plan by 212 votes to 207 votes.

"The budget charts a new direction for America," said John Spratt, the Democratic chairman of the House Budget committee.

Battles ahead

The votes are mainly symbolic at this stage of the budget process, with the final settlement unlikely to be resolved until after the November election.

The proposals reflect the sharply different political positions of the two parties ahead of the presidential election.

John McCain, the all-but-certain Republican nominee for president, is backing Mr Bush's proposals to make the bulk of his tax cuts permanent.

Democrats say that the tax cuts are unfair to ordinary people, and by repealing them the government will be able to spend more on health, education and the environment.

But both parties agreed to extend the tax cuts for the middle class, such as the $1000 tax credit.

And Republican and Democratic reformers failed in their efforts to eliminate "earmarks," extra funding on special projects in their own districts that Senators and Representatives are able to add to spending bills.

"There is only one place in America that doesn't get it about wasteful, earmark, pork-barrel spending," said Mr McCain, a strong supporter of the reform.