By Vicki Allen

WASHINGTON (Reuters) - The House of Representatives gave final approval on Wednesday to a budget plan laying the groundwork for a $1.35 trillion tax cut, as the evenly divided Senate debated the measure both sides agreed would pass.

The Republican-led House voted 221-207, near party lines, for the $1.97 trillion fiscal 2002 budget that sets the framework for tax relief over 11 years that fell short of President Bush (news - web sites)'s call for $1.6 trillion in cuts.

The Senate, which is split 50-50 between Republicans and Democrats, opened debate immediately after House passage and was to vote on Thursday on the compromise budget.

Lawmakers from both parties said they expected it to pass with support of several moderate Democrats.

``The American people can take heart that tax relief is one important step closer to reality,'' Bush said in a statement after the House vote.

``The economy continues to show troubling signs and we must take decisive steps, like this vote today, to ensure sound fiscal policy,'' he said.

House Speaker Dennis Hastert, an Illinois Republican, praised the plan for making ``necessary investments to make our nation stronger.'' But House Democratic Leader Dick Gephardt of Missouri said it would promote ``a special interest tax cut that takes away from our ability to deal with the needs of the people in our country.''

Moderate Senate Democrats, who forced Bush to trim his tax cuts and set aside $100 billion of them for rebates or quick tax cuts this year and next to boost the economy, were not disclosing whether they would back the final deal.

Breaux Agrees Budget Will Pass

But Sen. John Breaux (news - bio - voting record), a Louisiana Democrat who led the centrists in talks with the White House, agreed the budget would pass.

Asked about Republican predictions that they have the votes, Breaux said, ``I think that is correct.''

In fact the two moderate Republicans who been viewed as all but certain to reject the budget and tax cut plan -- Sens. James Jeffords of Vermont and Lincoln Chafee of Rhode Island -- were now wavering, their aides said.

They have said they did not think the budget offered enough for their priorities including schools and health care.

The budget, which Congress often ignores when it allocates money later, limits spending increases for most programs other than automatic payments such as Social Security (news - web sites) and Medicare to 4 percent in the next fiscal year that starts on Oct. 1.

That is just ahead of inflation and half this year's 8 percent growth that the Republican Congress and Democratic President Bill Clinton settled on last year.

Democrats said this was unrealistically low and would force Congress to raid Medicare and Social Security reserves, particularly as the Pentagon (news - web sites) is expected to seek tens of billions more in coming years and many lawmakers want more money for schools and to deal with natural disasters.

``This is a fabrication. This is make-believe budgeting. We ought to be ashamed that we're bringing this product to the floor, ashamed,'' Senate Democratic leader Tom Daschle of South Dakota said.

Senate Republican leader Trent Lott of Mississippi agreed spending likely will grow, but he said the budget was a sound starting point.

Rocky Ride

``Can we not have priorities in the government? Can we not spend a little more here and a little less here? And isn't a 4 percent increase over an inflated expenditure last year and the previous year an adequate amount? I think it is,'' Lott said.

The plan to curb government growth and return a large share of projected surpluses to taxpayers that was at the heart of Bush's campaign has had a rocky ride so far in Congress.

House Republicans had been set to ram through the budget last week until they realized that two pages from the document were left out shortly before the final vote, and with some embarrassment were forced to reschedule.

During the delay, moderate Senate Democrats forced Republicans to more clearly direct the tax-writing Senate Finance Committee to dedicate $100 billion of the tax cuts to an economic stimulus for this year and next, leaving the remaining $1.25 trillion to phase in tax cuts over 10 years.

Democrats want the stimulus to be done through rebates that would help lower-income people instead of income tax cuts that would yield most for those in the higher tax brackets.

Republicans want as much money as possible for the long-term income tax cuts, and the House budget has different language that would give the House Ways and Means Committee more leeway to roll the $100 billion into 11-year tax cuts.

That difference would have to be resolved in upcoming tax legislation. Democrats contend a tax-cutting bill without the two-year stimulus would not pass the Senate.

Earlier Stories
House Passes Fiscal 2002 Budget, Tax Cut Plan (May 9)
Congress Set to Vote on Budget, Tax Cut Plan (May 9)
House, Senate Set to Vote on Budget, Tax Cut Plan (May 9)
Dropped Pages Force U.S. Congress to Delay Budget (May 4)
Lost Pages Force Congress to Delay Budget Bill (May 4)

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