Washington, March 25 (Bloomberg) -- The U.S. Senate voted to reduce President George W. Bush's 10-year tax cut to $350 billion from $726 billion because of concern about the cost of the Iraq war and the future of Social Security. The 51-48 vote came after two minutes of debate as the Senate plowed through a list of 57 amendments to a bill setting guidelines for the $2.2 trillion budget. Republican leaders may try to reverse the result before final passage tomorrow. ``We'll see what the ultimate outcome is,'' White House spokesman Ari Fleischer said. ``They have a lot more voting to do.''
The amendment imperils Bush's proposal to eliminate the tax investors pay on dividends, which would cost $396 billion. ``It's another blow to the president's dividend exclusion,'' said Max Baucus, senior Democrat on the Senate Finance Committee. Stock markets dipped after the Senate action. The S&P 500 Index was up 15 points or 1.8 percent when the vote was announced. When U.S. markets closed an hour and a half later, the gain was 10 points or 1.2 percent. ``This sell-off related to the tax cut headline shows there's a big percentage of the market who are supply-siders,'' said Peter Tanous, president of Lynx Investment Advisory, which manages $1 billion for wealthy clients in Washington D.C. ``Supply-side'' economists believe lowering taxes almost always stimulates economic growth.
Outcome Reversed
A previous amendment to set the tax cut at $350 billion failed last week by 62-38. The proposal was changed to designate the difference for Social Security funds instead of reducing the deficit. The revision attracted Senator Ernest Hollings, a South Carolina Democrat who had said he's worried about tax cuts draining Social Security. Tanous expects Congress to cut the president's figure even further than $350 billion by the time the tax legislation is enacted. ``Bet lower, not higher,'' he said. ``The final tax cut figure will depend a lot on the power and prestige of the president coming out of the war.'' Republican Senator George Voinovich of Ohio estimated that it may cost the U.S. $2 billion a month next year to oversee post-war Iraq. ``The war has given everyone a more sober look at things,'' he said.
Eyes on War
Bush today sent Congress a request for $74.7 billion for war- related expenses in the last six months of the current fiscal year. The budget resolution controls subsequent spending and tax legislation for the next fiscal year, which begins Oct. 1. Concern about the war attracted support for today's amendment, said Baucus, a prime backer of the amendment. ``You don't cut taxes in a time of war, at least in modern history,'' the Montana lawmaker said. Republican Senators Voinovich, Olympia Snowe of Maine and Lincoln Chafee of Rhode Island supported the $350 billion figure. Georgia Senator Zell Miller, the lone Democrat supporting Bush's tax cut, didn't vote. In a subsequent vote, Snowe voted with Republicans to add back $146 billion for the tax cut to a total of $496 billion. The attempt lost because two Republicans didn't vote. In last week's vote, senators who oppose any significant tax cut voted against the amendment, including Hollings and Republicans John McCain of Arizona and Susan Collins of Maine. Fleischer criticized the notion of reserving the money for Social Security, which has no funds apart from government revenue. ``The history of such reserve funds is that they serve as a piggy bank for more spending,'' Fleischer said.
Kerry Loses
The Senate rejected 37-62 a measure from Massachusetts Senator John Kerry, a Democratic presidential candidate, to wipe out all new tax cuts in the budget bill and instead temporarily suspend payroll taxes for Medicare and Social Security. In actions earlier today, Republicans blocked attempts to extend unemployment benefits and provide health care coverage for the National Guard. The Senate voted 96-1 today to increase funding by $2.8 billion next year for the Centers for the Disease Control, the National Institutes of Health and the Health Resources and Services Administration, which aids low-income and special-needs people in getting medical services. By voice vote, lawmakers agreed to boost funding for special education, after-school programs and school construction funds by $2.35 billion and reduce the deficit by another $2.35 billion. A non-binding provision would raise $5.7 billion by closing loopholes that allow companies to relocate overseas and insurers to redirect U.S. insurance premiums for tax benefits. The House passed its budget 215-212 last week, with $726 billion for Bush's tax cut and deeper spending cuts to help reduce the deficit. The House Ways and Means Committee may begin debating the details of the tax cut this week. //www.quote.bloomberg.com/