Setback for Bush budget as Senate cuts tax package

As the moment of a crucial vote in the US Senate on President George W Bush's $1.6 billion (€1

As the moment of a crucial vote in the US Senate on President George W Bush's $1.6 billion (€1.44 billion) tax-cut proposal approached, Vice-President Dick Cheney and other Republican leaders frantically lobbied three of their Senate colleagues who were threatening to defect.

It was to no avail. Late on Wednesday evening, the three senators broke ranks in the evenly divided chamber to hand the Bush administration its first major legislative defeat and a public relations setback.

The most serious defection was that of Republican senator Mr Jim Jeffords of Vermont. He told Mr Cheney bluntly that the $1.6 trillion tax cut would drain money from education funds for the disabled, a programme he has always championed.

The Senate voted 53-47 to reduce the size of the tax cut by $450 billion over 10 years and divide the money between education and debt reduction. The vote came as the Senate continued debating a draft $1.94 trillion budget for 2002 that would pave the way for Mr Bush's tax proposal. Democrats were jubilant. "This is the first time the Senate has gone on record in opposition to the size of the tax cut," said Senate minority leader Mr Tom Daschle of South Dakota.

READ MORE

Mr Jeffords, along with Republican senators Mr Ben Nelson from Nebraska and Mr Lincoln Chafee of Rhode Island, also endorsed a more modest $1.25 trillion tax cut proposed by moderate Democratic senators led by Mr John Breaux of Louisiana. This falls between Mr Bush's proposal and a $750 billion package supported by Democratic leaders.

Mr Cheney met twice with Mr Nelson in his futile effort to persuade him not to break Republican ranks. He was also unable to prevent the surprise defection of Mr Arlen Specter.

The rebellion of key Republican senators made it the worst day yet for the budget and tax plan, which was the centrepiece of Mr Bush's economic platform during his presidential election campaign. The vote is not final and Republican leaders said they would work to restore the proposed 10-year tax cut to near its original size.

However, leading Republican senator Ms Kay Bailey Hutchison admitted the revolt could dash hopes for tax cuts beyond a reduction in income tax rates.

The House of Representatives, where Republicans have a larger majority, approved a similar budget last week and on Wednesday voted 274-154 for another component of Mr Bush's tax plan, a bill to eliminate estate taxes - the equivalent of inheritance tax - in 2011.

The deferment of the estate tax abolition for 10 years is another disappointment for Mr Bush.