WASHINGTON, March 22: The US Senate on Friday rejected a bid to slash President George W. Bush’s tax cut in half by a group of moderates worried about the cost of war with Iraq and soaring budget deficits.

The Republican-led Senate voted 38-62 against the amendment that would have limited Bush’s economic plan to $350 billion over the next decade. It was a victory for Bush and Republican leaders who want the $2.2 trillion 2004 federal budget to include the full $726 billion in tax cuts they say are needed to boost the economy and create jobs.

We need to be very bold in our response to the flagging economy, Senate Finance Committee Chairman Chuck Grassley, an Iowa Republican, said in defense of Bush’s tax cut.

The successful effort by Republican leaders to beat back the challenge by the bipartisan group of moderates came after the Senate voted to trim $100 billion from the tax package to set up a reserve fund to help pay for the unfolding war.

Republican leaders said they would seek to revisit the vote before the Senate completes consideration of its budget resolution. The resolution will set spending for fiscal 2004, which begins on Oct. 1, and lay the groundwork for tax cuts over the next decade.

Bush says the tax package, which would accelerate scheduled income tax cuts and eliminate taxes on dividends paid to investors, will help spur the stock market and create jobs.

Democrats argue Bush’s plan will benefit the wealthy, do little to boost the economy in the short term and add to long-term deficits that will push interest rates higher.

Democrats have also accused Republican leaders of trying to rush the budget and the tax cut through before the White House sends up a spending request — expected to total $75 billion or more — to cover the cost of the war. The White House is expected to send the spending request to Congress next week.

We are in a war and the budget must reflect it, said Sen. Russ Feingold, a Wisconsin Democrat who sponsored the measure to set aside money out of the proposed tax cut to pay for the war. We should prepare responsibly for that which is right before our eyes.

Sen. John Breaux, a Louisiana Democrat who led the bid by moderates to slash Bush’s plan said it was unwise to go along with big new tax cut when the country faced record budget deficits this year and next.

We do not have a surplus, in fact we have a $300 billion deficit facing us, he argued. There is no pot of money from which we can go to have a large tax cut of that magnitude. In addition to that we are at war, we are not at peace.

Congressional analysts estimate Bush’s tax and spending policies would cost the government $2.7 trillion over the next decade, generating budget deficits every year and turning an $890 billion surplus into a $1.82 trillion deficit.

The Senate was pushing to complete the budget package on Friday. The House of Representatives earlier in the day narrowly approved, by a vote of 215 to 212, its version of the budget proposing deep cuts in federal spending to fight rising deficits and pay for Bush’s tax cuts.—Reuters