April 1, 2009 / 10:26 PM / 11 years ago

Republican US budget plan would cut taxes, spending

* Senate rejects Republican spending freeze attempt

* Republicans in House offer plan with tax, spending cuts

* McCain to offer alternative budget plan in Senate

By Jeremy Pelofsky and Richard Cowan

WASHINGTON, April 1 (Reuters) - U.S. Senate Democrats on Wednesday rejected a bid to freeze some government spending as House Republicans offered an alternative budget plan that would slash taxes and repeal most stimulus spending.

The two chambers of the Democratic-led Congress were moving toward passing as early as Thursday slightly slimmed-down versions of President Barack Obama’s $3.55 trillion 2010 budget plan.

Since Democrats have comfortable margins in the House of Representatives and Senate, the House Republican plan is not expected to pass. The budget legislation is not binding but sets guidelines for spending and tax measures Congress will consider later this year.

The top Republican on the House Budget Committee said his party’s 10-year plan would begin to reverse rising government outlays by repealing most economic stimulus spending starting next year. He also proposed large corporate and individual tax cuts.

“It is very important to understand, we are going into an ocean of red ink in this country. We cannot go down this path of borrowing and borrowing and borrowing,” Representative Paul Ryan told reporters.

Ryan’s budget blueprint would freeze spending, except for military and veterans’ programs, and make permanent former President George W. Bush’s tax cuts that are set to expire at the end of next year.

In February, Congress approved $787 billion to jump-start the struggling economy. The Republican plan would only fund expanded unemployment insurance benefits next year as part of the stimulus.

The alternative plan also calls for savings in the huge Medicare, Medicaid and Social Security health and retirement programs that threaten to drain government coffers because of the aging population and growing healthcare costs.

“Our initial read is that this is a continuation of the failed policies of the last eight years,” Rob Nabors, deputy director of the White House Office of Management and Budget, told Reuters Financial Television.

‘UNITY OF PURPOSE’

House Majority Leader Steny Hoyer predicted his fellow Democrats would not be split despite some differences over the budget plans. “You’re going to see a unity of purpose, unity of commitment on the Democratic side,” he told reporters.

Representative Heath Shuler, a member of the “Blue Dog” group of Democratic fiscal conservatives, told reporters he expected a “substantial number” of his bloc to back the Democratic version of the budget.

In what could foreshadow the outcome on the budget later this week, no House Republicans voted to clear the Democratic budget for debate, while nearly every Democrat voted to begin debate on the mammoth package.

Senators on Wednesday approved an extra $550 million to beef up security on the U.S. border with Mexico amid violent gang wars, but rejected a Republican amendment that would have frozen for two years non-defense spending on programs like education, law enforcement and space exploration.

The Senate approved adding $4 billion for the international affairs budget, which includes aid to countries like Pakistan and was originally at about $50 billion. They also added $1.9 billion in heating assistance for low-income households, bringing the total to $5.1 billion.

They approved an amendment that would set the stage for a tax credit to encourage home sales, which have been flagging in the recession-hit economy. They also voted to prevent using a fast-track method for considering climate change legislation later this year.

Republican Senator John McCain, who lost to Obama in the presidential election, planned to unveil his own budget plan, which would limit increases in certain non-defense spending to the inflation rate and extend the Bush tax cuts that expire next year. (Additional reporting by Steve Holland; Editing by Peter Cooney)

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