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Senate Sets Stage for Bruising Budget Battle with House

March 18, 2005—In adopting its budget resolution Thursday, the Senate posed more questions than it answered for the budget conferees who will begin to hammer out a deal when lawmakers return to Capitol Hill in two weeks.

The House by 218–214 adopted its resolution (H Con Res 95) calling for mandatory spending cuts of $69 billion and tax cuts totaling $106 billion, including $45 billion in tax cuts that would be protected from a filibuster in the Senate. It also set a total discretionary spending ceiling of $843 billion, in keeping with President Bush's request.

But the Senate, before adopting its version (S Con Res 18) of the budget Thursday night, voted 52-48 to strip out $15 billion of the $32 billion in mandatory spending cuts envisioned by the Budget Committee over five years. It also increased the overall discretionary spending cap by $5.4 billion and nearly doubled—to $129 billion—the net amount of tax cuts that would enjoy protection from a filibuster in the Senate.

Spending Battles Ahead
The reduction in mandatory spending cuts came in the form of an amendment by Sen. Gordon H. Smith, R–Ore., that knocked out reconciliation instructions to the Finance Committee to find $15 billion in savings from programs under its jurisdiction—about $14 billion of which was expected to come from Medicaid, the federal-state health insurance program for the poor.

The Senate adopted several amendments expressing support for increased funding for a variety of discretionary programs that Bush is seeking to cut, including Community Development Block Grants, rural education and health care, and homeland security grants for first responders.

But those amendments did not raise the discretionary spending level in the budget. All they did was put some pressure on appropriators to fund the named programs.

The more significant amendment, raising the overall discretionary cap to nearly $849 billion, was offered by Edward M. Kennedy, D–Mass., and adopted by 51–49. With the House and Bush insisting on a spending ceiling of no more than $843 billion, that figure may not survive conference negotiations.

Despite continued deficits, the votes in favor of various spending priorities did not quell the Senate's appetite for tax cuts.

Tax Cut Surprise
The Senate budget resolution originally called for the protection of $70 billion in tax cuts through the reconciliation process. The House resolution would shield $45 billion.

The Kennedy amendment increasing discretionary spending by $5.4 billion was offset by an equal reduction in the $70 billion tax cut figure. But an amendment by Sen. Jim Bunning, R–Ky., pushed the net tax cut number to $129 billion.

"It firmly goes off in two different directions," Robert L. Bixby, executive director of the Concord Coalition, said of the Senate budget.

Republican leaders are mulling the implications of Thursday night's surprise vote. While GOP moderates had balked at anything more than the $70 billion of the initial resolution, several voted for the Bunning amendment—possibly out of confusion.

The amendment had the stated purpose of reversing a 1993 law (PL 103-66) that increased to 85 percent the proportion of Social Security benefits paid to relatively well-off seniors that is subject to income tax.

But that policy recommendation is non-binding, and the practical effect of the amendment was to expand the total tax cut figure that would be afforded procedural protection against filibusters in the Senate.

Bunning has offered similar amendments in past years only to see them rejected.

"That was a shocker," Bixby said. "You kind of have to wonder if they were fully aware of what they were doing because the end result is to double the tax cut."

Five deficit-wary GOP moderates opposed the Bunning amendment, but five Democrats—Robert C. Byrd, W.Va., Ben Nelson, Neb., Bill Nelson, Fla., Mary L. Landrieu, La., and Ken Salazar, Colo.—joined 50 Republicans to adopt it.

Byrd has already signaled that while he voted "yes," he wants any tax cuts in a reconciliation package to be fully offset. In the past, Byrd has opposed efforts to use the reconciliation process to cut taxes.

The House budget calls for $106 billion in tax cuts, only $45 billion of which would be given procedural protection. GOP leaders say they want to push legislation that would make certain 2001 and 2003 tax cuts permanent, a goal that cannot be accomplished in reconciliation.

Top GOP tax and budget aides were surprised by the vote. Budget Chairman Judd Gregg, R–N.H., has been wary of including too high a tax cut number in his budget, lest he lose the support of GOP moderates.

Some GOP supporters of the Bunning amendment suggested Thursday night that a final tax reconciliation figure higher than $70 billion still might meet with opposition, given concerns about the deficit.

Norm Coleman, R–Minn., said there will be "reality and sobriety at the end of the day."

But while House and Senate conferees will have to assess whether they can get a compromise budget through the Senate, an overall tax figure of more than $100 billion—a figure desired by the Bush administration—now appears more possible, said one GOP aide.

Senate tax writers have signaled that the original $70 billion figure is not big enough to easily accomplish GOP goals—which include a series of popular tax cut extensions and a more controversial extension of the 15 percent tax rate on capital gains and dividends.

On the spending side, it remains unclear whether House and Senate negotiators will be able to arrive at a mandatory savings figure that is big enough to please House conservatives but does not alienate Senate Republicans, like Smith, who thought $14 billion cut from Medicaid was too much.

House appropriators are already discussing how they will divide the discretionary spending pot among their 10 subcommittees. However, the Senate adoption of a higher figure may not change their calculations.

"We've even started doing our allocation meetings, based on the president's budget request," said House Appropriations spokesman John Scofield.

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