April 6, 2006

Republicans fail to pass budget, tax bills

By Richard Cowan

WASHINGTON (Reuters) - Republicans in the U.S. Congress
suffered two major setbacks on Thursday when their fiscal 2007
budget plan collapsed and they failed to put the finishing
touches on $70 billion in tax cuts.

The developments could not have come at a worse time as
Republicans, who control both chambers of Congress and the
White House, were hoping to shake election-year blues dominated
so far by ethics scandals and sinking popularity.

Now, instead of returning to their home districts for a
two-week spring break touting tax cuts and the passage of a
budget they hoped would trim huge budget deficits, Republicans
will greet their constituents empty-handed.

Following weeks of negotiations between the House and
Senate, Republican leaders had been hopeful they could finish
their tax-cut package this week. Treasury Secretary John Snow
even canceled a trip to the Midwest to work on a compromise.

The tax cuts, central to President George W. Bush's
domestic program, would have extended the maximum 15 percent
tax rate on capital gains and dividends beyond 2008, when the
lower rates are set to expire. Without congressional action,
capital gains taxes would jump to 20 percent and dividends
would be taxed as regular income.

Republicans also wanted to include some relief from the
Alternative Minimum Tax, which was aimed originally at only a
few of the wealthiest Americans but would hit as many as 20
million taxpayers on their 2006 tax returns if Congress failed
to act.

The bill was abandoned for now, without explanation.


Earlier on Thursday, the U.S. House of Representatives
spent the day debating a $2.8 trillion fiscal 2007 budget
blueprint that would have given Bush the 7 percent increase in
defense spending he requested, while keeping a tight lid on
domestic programs, such as health and education.

Annual budget plans do not have force of law but set broad
limits for spending bills Congress will try to pass this
summer. Without those spending limits, Congress might edge into
even greater deficit spending. Last month, the Senate narrowly
approved its version of a fiscal 2007 budget plan.

The U.S. budget deficit for fiscal 2006 could exceed $400

House Majority Leader John Boehner, an Ohio Republican,
said he still hoped to "move forward with the budget" after the
recess in late April. That was a reversal from a statement he
made earlier this week when he told reporters he saw no point
in pursuing a budget beyond this week.

After several days of leading intense negotiations among
warring Republican factions in the House, Boehner canceled a
vote on the budget, which no Democrats appeared to support.

The main problem was infighting among Republicans,
according to a Republican aide close to the negotiations.

Moderate Republicans, such as Rep. Nancy Johnson of
Connecticut, were pushing for about $7 billion in additional
funds for health, education and other domestic programs the
Senate already approved. Several moderate Republicans face
tough re-election campaigns this year.

Conservative Republicans balked, demanding tight spending
caps and also pushing budget reforms that would further control
domestic spending.

The conservatives' budget reform initiatives angered a
powerful group of Republicans who control the House
Appropriations Committee. Led by Chairman Jerry Lewis of
California, those Republicans did not want their power to
oversee spending diluted by others.

The ranking Democrat on the House Budget Committee, John
Spratt of South Carolina, said, "Any idea that they'd
(Republicans) be able to put this back on track, once we come
back here after two weeks, seems far-fetched."

(Additional reporting by Susan Cornwell)