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House GOP Budget Plan Collapses

The collapse of a $2.8 trillion House GOP budget blueprint threatens to send Republicans into the fall election season with deficits on the rise and no plan in place to contain them.

Feuds among rival Republican factions led House GOP leaders to pull the measure from the floor Thursday, while separate talks aimed at extending President Bush's tax cuts for capital gains and dividends stalled. That sent lawmakers home for a two-week recess with few accomplishments to deliver to their constituents.

Opposition to the budget plan among moderates and a power struggle between a faction of conservatives and the House Appropriations Committee led to the demise of the budget measure. Republican unity was essential to passing the plan, since no Democrats were expected to back it.

The episode embarrassed the newly overhauled House GOP leadership, which is trying to demonstrate to voters that it's cracking down on spending.

House Democratic leader Nancy Pelosi, D-Calif., called it "a great day for the American people."

"The Republican party was forced to pull its immoral budget from the floor," she said.

The budget resolution is a nonbinding blueprint that establishes lawmakers' tax and spending priorities. It sets the outlines for subsequent bills that cut or raise taxes and spending. With Republicans anticipating a mostly stand-pat year — with no major tax cuts on the agenda and efforts to cut benefit programs iffy at best — passing a budget plan isn't critical.

Republican leaders vowed to mend their rifts over domestic spending, procedures for passing disaster aid and earmark "reform" after returning from a two-week break, but its chances of House passage then may be slim.

And even if the House ultimately is successful in passing the measure, difficult talks would loom with the Senate.

The tax legislation, left over from last year's agenda, may face better chances for completion. The bill, allowing $70 billion in tax cuts over five years, could carry two priorities of tax writers and GOP leaders — a capital gains and dividends tax cut extension through 2010 and a patch to prevent millions more families from paying the alternative minimum tax this year.

Without action, as many as 19 million taxpayers could owe the alternative minimum tax, a trap for wealthy tax dodgers that increasingly threatens less wealthy families with higher taxes. In addition, the 15 percent top capital gains and dividends tax rate would increase in 2009, rising to 20 percent for capital gains and rates as high as 39.6 percent for dividends.

Other expired or expiring tax breaks also need to be extended, including a business research and development credit.

This year's House budget plan reflected election-year realities and dropped President Bush's proposed cuts to Medicare, Medicaid, crop subsidies and other politically sensitive programs. After passing a five-year, $39 billion bill cutting Medicare, Medicaid and student loan subsidies last year, the new budget proposed just $6.8 billion in savings spread over five years from programs whose budgets typically rise with inflation and population growth.

To the dismay of moderate Republicans, the proposal adopted the president's plan to trim spending reviewed annually by Congress and impose the $873 billion spending cap for the 2007 budget year, beginning Oct. 1.

That sparked a battle between moderates, who wanted to reverse cuts to popular programs in education and health research, and Republican conservatives, eager to crack down on agency budgets.

It endorsed Mr. Bush's call for a 7 percent increase in the core defense budget. It also assumed lawmakers would spend $50 billion for wars in Afghanistan and Iraq, less than half the expected spending for the current year.

The defense increase came at the expense of domestic programs like education, health research and grants to local governments and relief agencies. Even so, the budget would produce a deficit of $348 billion in 2007 and deficits totaling more than $1 trillion through 2011 if Congress enacted its policies.

Separately, Appropriations Committee Chairman Jerry Lewis, R-Calif., fought with conservatives over their demands for overhauling the congressional budget process.

Lewis particularly objected to a plan by Budget Committee Chairman Jim Nussle, R-Iowa, to establish a "rainy day fund" that would make it difficult to pass disaster aid that exceeds $4.3 billion unless approved by the Budget Committee.