House and Senate leaders struck an extraordinary budget agreement on Wednesday that would postpone until later this year a resolution of the internal Republican battle over how deeply to cut taxes.
They also tried resolving eleventh-hour disputes over a separate package providing nearly $80 billion for initial costs of the Iraq war and its aftermath plus other efforts to combat terrorism around the globe.
The budget compromise — which won crucial support from a pair of moderate GOP senators — removed the last major obstacle to congressional passage this week of a $2.2 trillion tax-and-spending plan for 2004. Leaders also wanted to send President Bush the war spending bill this week.
"We're done," said House Budget Committee Chairman Jim Nussle, R-Iowa.
The fiscal blueprint would let the Senate pass a tax-cutting bill in coming weeks costing $350 billion through 2013, while Nussle said the House's price tag would be $626 billion.
The two chambers would have to approve a bill with a common number before shipping it to Bush for his signature, but a dispute over that figure erupted. Republicans said a compromise House-Senate bill could have any tax cut between $626 billion and $350 billion, but Democrats said they had a letter from the Senate parliamentarian stating that for procedural reasons, Senate Republicans would need 60 votes for any part of the tax cut exceeding $350 billion.
The agreement seemed to spell the end of the full $726 billion package Bush proposed in January as a major pillar of his domestic agenda. He said his plan — which would end taxes individuals pay on corporate dividends and accelerate scheduled income tax cuts — would revitalize the listless economy.
Congressional aides and private analysts said they believed a final congressional budget had never before left the tax number undecided. The ambivalence underscored an unresolved feud between GOP conservatives who say a larger tax cut would be a boon to the economy, and moderates who say it would worsen federal deficits expected to approach $400 billion this year.
"The motivation is pretty clear and simple: To pass the buck" to the tax-writing Senate Finance and House Ways and Means committees "for something the budgeteers couldn't figure out," said Sen. Charles Grassley, R-Iowa, the finance panel chairman.
Underlining the bitterness of the internal GOP debate, Nussle said in an interview that the dual-track approach was needed because of "four votes in the Senate, who don't seem as concerned about economic growth as the vast majority of the Republican Party, and we need to manage that problem."
Despite a thin Senate majority, Republicans there have fallen two votes short of being able to increase the $350 billion tax cut it endorsed last month. At various times, GOP Sens. Lincoln Chafee of Rhode Island, John McCain of Arizona, Olympia Snowe of Maine and George Voinovich of Ohio have opposed a larger tax reduction.
But Wednesday, GOP congressional aides and White House officials expressed confidence that the approach would win them the 50 votes they would need to muscle a budget through the Senate, with Vice President Dick Cheney providing the tie-breaking 51st vote if needed. Aides to Voinovich and Snowe said the senators would support the budget, while Snowe tentatively endorsed it.
"I think that's a major step forward," said Snowe.
Democrats, who mostly prefer far smaller or even no tax cuts this year, ridiculed the GOP's two-headed tax number. Senate Minority Leader Tom Daschle, D-S.D., called it "bizarre," Sen. Kent Conrad, D-N.D., called it "Disney World," and Sen. Max Baucus, D-Mont., called it "la-la land."
They also cautioned that the agreement would let the GOP ram the House's deeper tax cuts through the Senate anyway — which Frist and other Republicans denied.
Though Congress' budget only sets overall revenue and expenditure guidelines, it can protect a subsequent tax-cutting bill from a Senate filibuster, delays that require votes from 60 of the 100 senators to end. With Republicans running the Senate by 51-48, plus a Democratic-leaning independent, that protection will be critical because Democrats would likely be able to kill tax-cutting legislation.
Bowing to demands from moderates, the compromise budget would drop the $265 billion in savings over 10 years that the House-passed plan had ordered in benefit programs like student aid and Medicaid. It would allow roughly $787 billion in spending next year for annually approved, non-benefit programs that Bush proposed, a compromise between the two chambers, and claims to be balanced in 2012, Nussle said.
Meanwhile, House-Senate bargainers tried putting finishing touches on a compromise war spending package. One of the remaining obstacles were objections by Senate Appropriations Committee Chairman Ted Stevens, R-Alaska, to House demands that the final bill omit items the Senate had inserted, such as extra money for an animal lab in Iowa.