updated 6/5/2008 1:16:56 PM ET 2008-06-05T17:16:56

Democrats gave final approval on Thursday of a budget blueprint for 2009 that rewards domestic agencies and the Pentagon with generous budget increases while leaving wrenching decisions about curbing Medicare costs and increasing taxes to the next president.

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The House approved the $3.1 trillion budget plan by a 214-210 vote; senators passed the measure Wednesday. The nonbinding measure does not go to President Bush but instead sets guidelines for future action by Congress.

The House-Senate compromise relies on questionable assumptions to predict a small budget surplus by 2012 after seven years of deficits under the Republican president.

It would achieve the surplus goal only by allowing many of Bush's signature tax cuts to expire on schedule in 2 1/2 years and by predicting that the wars in Iraq and Afghanistan will not cost a dime after next year.

The measure's prediction of a $340 billion deficit for next year is far from reality, too. The projection omits the full cost of the war in Iraq as well as the approximately $60 billion cost of ensuring that more than 20 million middle-class taxpayers are not hit by the alternative minimum tax.

The next president actually will inherit a deficit in the $400 billion range, or higher, under current estimates. Some Wall Street economists fear record deficits of up to $500 billion.

Republicans lamented the lost opportunity to tackle the biggest budget challenge: the rapidly spiraling cost of Medicare, Social Security and the Medicaid health care program for the poor. The Democratic plan would not impose any cost-cutting on them.

Democrats are generous, however, in the near term with the annual spending bills passed by Congress. Over the five years of the Democratic plan, appropriated spending would rise $241 billion. In line for large increases are education, energy and public works.

Decisions on extending Bush's 2001 and 2003 tax cuts will be put off until the next administration. It will be impossible under current projections to increase spending as much as Democrats want, renew the Bush tax cuts and still balance the federal ledger.

The compromise budget plan assumes the renewal of tax cuts aimed at the middle class. That includes the $1,000 per child credit, relief from the marriage penalty, estate tax cuts and the 10 percent tax rate on the first $7,825 of income for individuals.

But there is not enough money left to extend cuts on income tax rates, capital gains and dividend income and still produce a surplus.

"The budget before us is a step in the right direction," said the chairman of the House Budget Committee, Democratic Rep. John Spratt Jr. of South Carolina. "It may not be a grand solution, but this budget moves us in the right direction."

Congress' annual budget debate involves a nonbinding resolution that sets the stage for later bills affecting taxes, benefit programs and the annual appropriations bills.

But this year, little follow-up legislation is planned. The limited agenda includes addressing the alternative minimum tax, extending some expiring tax breaks for business and preventing doctors from absorbing cuts in their Medicare payments.

Democrats also hope for a major boost in the GI Bill for veterans' college benefits, at a cost of more than $50 billion over the upcoming decade.

The budget calls for the Pentagon to receive a $36 billion budget boost, more than 7 percent, and rewards nondefense accounts with a $24 billion increase, almost 5 percent increase.

House approval also meant the automatic passage of a separate bill to increase the statutory limit on the national debt by $800 billion, to $10.6 trillion. That saves lawmakers from having to cast a difficult separate vote on that issue.

The other immediate effect of the Democratic plan is to allow the House and Senate Appropriations committees to press ahead with 12 spending bills for the budget year beginning Oct. 1.

Copyright 2008 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.


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