updated 3/23/2007 5:17:11 PM ET 2007-03-23T21:17:11

The Senate approved a Democratic budget plan Friday that promises a balanced budget in five years by mixing spending increases with renewal of expiring tax cuts.

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The $2.9 trillion budget outline won approval on a 52-47 vote, but only after Democratic moderates rewrote it to favor extending several popular tax cuts that are to expire at the end of the decade.

The most immediate impact would be to sanction big spending increases when lawmakers later this year write budget bills for the Pentagon and domestic Cabinet agencies.

The vote was a victory for Senate leaders who viewed passing a budget as a key sign of Democrats’ ability to govern. The vote was mostly along party lines, though two Republicans joined the Democrats in backing the plan, Sens. Olympia Snowe and Susan Collins of Maine.

Congress failed to pass a budget last year, and Democrats didn’t even bring one to the floor when controlling the Senate in 2002.

The Democratic blueprint is nonbinding but sets guidelines for follow-up legislation.

It also would require that lawmakers seeking to cut taxes or boost benefit programs — such as Medicare, children’s health care or farm subsidies — to “pay for” the changes with tax increases or offsetting spending cuts.

War funding left out
The budget suffers, however, from some of the same flaws Democrats see in Bush’s February budget plan. Like Bush, the Democrats left out funding for the long-term costs of the war in Iraq and for fixing the alternative minimum tax that threatens unsuspecting middle-class families.

“I don’t assert that this is a perfect budget,” said Budget Committee Chairman Kent Conrad, D-N.D. “But at the end of the day, the test for us is, ‘Can we write a budget for our country?”’

Republicans criticized the Democratic plan for allowing above-inflation increases for domestic agency budgets and for assuming that lower taxes on income, inheritances and investments passed during Bush’s first term will expire in 2010.

Conrad’s original budget assumed all the Bush tax cuts expired in 2010, creating a $132 billion surplus in 2012. But Democrats who voted for the 2001 Bush tax cuts, including Max Baucus of Montana, Ben Nelson of Nebraska and Blanche Lincoln of Arkansas, moved to take that surplus — and more — and devote it to renewing tax cuts aimed at the middle class.

They won a 97-1 vote in favor of extending tax relief for married couples, people with children and those inheriting large estates. The vote foreshadows renewal of those tax cuts — most likely after the 2008 presidential election, with the details depending on the balance of power in Washington and on the fiscal outlook at that time.

Non-military spending would increase by $18 billion under the Democratic plan, about a 4 percent increase that’s much larger than passed in recent years by GOP-controlled Congresses.

Veterans programs, education, health research and homeland security programs would be the big winners under the Democratic blueprint.

Tax amendment defeated
Friday’s debate featured many votes on taxes.

By a 51-48 vote, senators rejected an amendment by Sen. Jon Kyl, R-Ariz., to erase taxes on estates worth up to $5 million and impose a 35 percent top rate on larger estates, beginning in 2011.

The current top rate is 45 percent but unless Congress acts the estate tax will revert to 2001 levels — a $1 million exemption and 55 percent top rate — at the end of 2010.

Democrats defeated Kyl’s amendment because it would have swelled the deficit by $16 billion in 2012 — the year their budget seeks to achieve balance.

Sen. Gordon Smith, R-Ore., won a 59-40 vote to put lawmakers on record in favor of increasing taxes on tobacco to pay for a big boost in a popular program providing health insurance for children from poor families.

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