Bush, Republicans agree to smaller tax cut

10-year relief package would be $1.35 trillion


WASHINGTON -- Bending to moderate Democrats, President Bush and congressional Republicans agreed yesterday to cut taxes by $1.35 trillion between now and 2011 and appeared close to a deal on how much to spend on government programs without devouring all of the projected budget surpluses.

The agreement means American taxpayers can count on lower taxes as soon as this year. Income taxes are likely to be reduced first, particularly if lawmakers first cut the 15 percent rate to 10 percent, although details are not decided.

Bush, in an impromptu Rose Garden appearance, said, "I congratulate the members of the Senate and the House, Republicans and Democrats, who have worked so hard to achieve this bipartisan agreement. You all deserve great credit for agreeing to provide the American people with meaningful, significant, sweeping tax relief -- the most tax relief in a generation."

Though Congress must now write tax-cutting legislation that meets the budget target number, the agreement all but ensures that such a tax cut will pass.

Under the agreement, Congress could use $100 billion from this year's surplus to pay for an "economic stimulus" tax cut for this year and next year. The remaining $1.25 trillion would be paid by projected surpluses over the next 10 years.

But tax cutting is only one factor in the budget-writing process, and Republican lawmakers were moving to close a significant gap over how much money to devote to the spending side of the ledger.

The agreement on the tax cut was necessary to reconcile differences between the budget adopted by the House in March and the one approved by the Senate last month. The House called for a tax cut of $1.6 trillion, the same size as Bush's; the Senate set the tax cut at $1.2 trillion. The House also set spending growth at 4 percent over last year; the Senate increased spending by more than 8 percent.

Republican negotiators were under pressure from Senate appropriators -- the senators who control spending bills -- to find a middle ground between the two percentage rates. But House Republicans, typically more fiscally conservative than their Senate counterparts, were insisting that the increase in spending be as close to 4 percent as possible.

By late afternoon, negotiators were discussing an increase of 5.2 percent -- which presumably would satisfy enough House Republicans to guarantee passage.

But that rate of spending still worried some. If Congress sustains a 5.2 spending rate over the next 10 years and cuts taxes by $1.35 trillion, it would exhaust the projected surplus.

"If they don't keep spending under very tight control, they could blow through the entire budget surplus," said Robert Bixby, executive director of the Concord Coalition, a bipartisan group that monitors federal budgets.

The size of the tax cut is about $300 billion smaller than the $1.64 trillion that Bush had initially proposed. But it is significantly higher than the $750 billion that Democrats had insisted upon.

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