updated 3/16/2007 10:40:52 AM ET 2007-03-16T14:40:52

The Senate Budget Committee has approved a plan that promises a federal surplus in five years - but only by assuming President Bush's tax cuts expire at the end of this decade.

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Democrats muscled the bill through the committee on a party-line 12-11 vote that presages an equally partisan debate by the full Senate next week.

Despite much debate over taxes, the immediate impact of the $2.9 trillion budget blueprint for next year is to award an $18 billion increase to domestic programs popular with lawmakers in both parties.

Tough choices delayed
Democrats opted to put off politically painful decisions on shoring up the finances of Medicare and Social Security.

The measure is largely a response to Democratic complaints that Bush has shortchanged programs funded each year by appropriations bills - including education, health research and grants to local governments - while awarding expensive tax cuts tilted toward affluent, GOP-leaning constituencies.

But Republicans warned that the plan, authored by Senate Budget Committee Chairman Kent Conrad, D-N.D., would guarantee the demise of Bush's tax cuts, which expire at the end of 2010.

Bigger debate expected
The Democratic plan assumes Bush's tax cuts on income, married couples, investments and inheritances will expire as scheduled unless lawmakers produce more than $400 billion in tax revenues to comply with the Democrats' so-called pay-as-you-go rule.

"It would be the largest tax increase ever," said Sen. Charles Grassley of Iowa, top Republican on the tax writing Finance Committee.

"There isn't going to be any tax increases anytime soon," Conrad said. He said his budget is aimed at paving the way for a bigger debate on myriad tax questions - including painfully expensive long-term reforms to the alternative minimum tax - after next year's presidential election.

"This budget puts a burden on the Finance Committee to come up with $916 billion," Grassley said.

Living up to promises
In the near term, the Democratic plan puts procedural hurdles in front of attempts to cut taxes or increase spending on federal benefit programs such as farm subsidies and Medicare.

But it remains to be seen whether lawmakers can live up to promises to "pay for" tax cuts or new benefits with corresponding spending cuts or tax increases elsewhere in the code.

Congress has routinely avoided comparable barriers to deficit-financed bills to extend short-term tax cuts and stave off cuts in Medicare payments to doctors.

Difficult tests loom later this year as Congress advances legislation to increase health insurance coverage for poor children, forestall Medicare cuts and fix the alternative minimum tax to spare almost 20 million taxpayers from unexpected tax increases.

While claiming to produce a $132 billion surplus in five years, Conrad's budget would increase the deficit from $212 billion in the ongoing 2007 budget year to $249 billion in 2008.

Republicans say Conrad is being far too optimistic in claiming easy revenues on paper from shutting down offshore tax havens and improving IRS tax collections - while downplaying all-but-inevitable increases in tax rates. Grassley said such measures could probably cover just 5 percent of the cost of renewing the Bush tax cuts and curbing the alternative minimum tax.

Generous Democratic plans
For now, the Senate Democratic plan seems aimed chiefly at getting Congress' arcane budget process back on track after years of off-and-on success. Republicans failed to complete their budget work last year, resulting in a messy $464 billion catchall spending bill that passed last month.

The annual congressional budget resolution is a nonbinding document that sets guidelines for subsequent legislation. Its most important feature often is to impose a "cap" on the 12 annual spending bills produced by the appropriations committees.

In that regard, the Democratic plan is far more generous to non-defense appropriated programs - including education, grants to state and local governments and law enforcement agencies - than is Bush's budget plan, rewarding them with an $18 billion increase as opposed to the less than $4 billion boost Bush recommended.

The move appears to set up a clash this September with Bush, who has yet to veto a single appropriations bill, but who seems eager to get started.

On the ticklish issue of Medicare, the Democratic plan would pare $15 billion from payments to Medicare providers such as private insurance companies. It rejects Bush budget proposals to impose payment cuts on Medicare providers such as hospitals, nursing homes and home care providers, and larger premiums on higher-income beneficiaries.

The $15 billion in Medicare cuts assumed under Conrad's blueprint would be used to increase the number of children in low-income families receiving health insurance through the popular State Children's Health Insurance Program.

Democrats rejected a move by Sen. John Ensign, R-Nev., to add a Bush proposal to impose larger premiums on higher-income participants in the Medicare prescription drug program.

They also rejected a GOP move to require 60 votes in the 100-member Senate to raise income tax rates.

Copyright 2007 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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