updated 5/16/2007 2:36:01 PM ET 2007-05-16T18:36:01

Congressional Democrats Wednesday announced agreement on a $2.9 trillion budget blueprint for 2008, promising a budget surplus in five years but only by allowing some of President Bush’s tax cuts to expire.

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The nonbinding plan, to be officially released later Wednesday, caps weeks of private negotiations and paves the way for action this summer on annual spending bills totaling $1.1 trillion for the coming fiscal year.

The Democratic budget promises a $41 billion surplus in 2012, but does so by assuming taxes on income, dividends and stock sales go up in 2011 instead of being extended as called for by Republicans and Bush. Republicans credit the tax cuts, passed in 2001 and 2003, with reviving the economy, but most Democrats say they are tilted in favor of wealthier taxpayers.

Tax cuts aimed at the middle class could be renewed under the compromise, including provisions establishing a 10 percent rate on the first $12,000 of a couple’s income, as well as relief for married couples, people with children and those inheriting large estates.

To extend the middle class tax cuts would cost about $180 billion over 2011-12; extending the rest of the 2001 and 2003 tax bills would cost about $240 billion over the same period.

The Democratic plan would also restore a “pay-as-you-go” rule that requires tax cuts or spending increases in benefits programs such as Medicare, children’s health care or farm subsidies to be financed by spending cuts or tax increases elsewhere so as to not worsen the deficit.

The budget plan is not binding but sets goals for subsequent tax and spending bills. It makes a statement about the priorities of majority Democrats and provides an early test for the party to prove it can govern.

‘This plan will begin to dig us out’
The House will vote on the measure Thursday and a Senate vote could also come this week.

Democrats said the emerging plan would bring to an end a steady string of deficits, producing a $41 billion surplus in five years. Democrats blame Bush for putting the budget back in deficit after taking office amid projections of $5.6 trillion worth of surpluses over the subsequent decade.

“We’ve been placed in a deep hole,” said Senate Budget Committee Chairman Kent Conrad, D-N.D. “This plan will begin to dig us out.”

But the need to pass the budget exclusively with Democratic votes forced lawmakers such as Conrad and House Budget Committee Chairman John Spratt Jr., D-S.C., to draw up a document with few if any politically risky initiatives that could have bled support from the plan.

Democrats took a pass on overhauling federal retirement programs such as Social Security and Medicare, which are threatened with insolvency in coming decades with the retirement of the Baby Boom generation. They instead hope to address shortfalls in benefit programs after the 2008 election as part of broader talks that would also determine the future of the Bush tax cuts.

Claims of tax increase
The top Republican on the Senate Budget Committee, Judd Gregg of New Hampshire, said the Democratic plan would produce “the largest tax increase in U.S. history, billions in new spending, and no attempt to address the long-term fiscal crisis” looming in federal retirement programs and the Medicaid health care program for the poor and disabled.

The Democratic plan produces its modest $41 billion surplus in 2012 with some shaky assumptions. For instance, it does not provide for any spending on military operations in Iraq and Afghanistan after 2009, and it fails to provide funding for a long-term fix to the alternative minimum tax that threatens to ensnare about 20 million additional taxpayers unless addressed.

The plan also sets up a big confrontation with the administration, which has promised to veto appropriations bills — the 12 annual spending measures funding Cabinet agency budgets — that bust Bush’s budget targets.

Democrats promise to fully fund Bush’s whopping 11 percent hike in the Pentagon’s budget, but Bush objects to their plans for increases averaging 5 percent for domestic agencies such as the departments of Education, Labor, Health and Human Services and Homeland Security.

The budget would also allow Democrats to use fast-track procedures to overhaul college aid programs, providing billions of dollars in additional aid for students — financed by reducing subsidies to lenders.

The special procedures allow Democrats to sidestep the possibility of a GOP filibuster in the Senate, which is likely to allow them to take a more aggressive posture in curbing lender subsidies.

© 2013 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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