WASHINGTON (By Jonathan Weisman, Washington Post) March 18, 2005 - The Senate last night dealt a slap to President Bush and the Republican leadership, approving a 2006 budget that would gut much of the GOP's deficit-reduction efforts by restoring requested cuts to Medicaid, education, community development and other programs.

With their deficit-reduction targets disappearing, Senate Republicans also nearly doubled the budget plan's tax cuts to $134 billion over five years. The budget passed 51 to 49, with four Republicans voting no.

The Senate's actions set up a major fight over budget priorities, as the Senate, House and White House try to iron out an agreement that would allow for the first entitlement cuts since 1997, as well as oil drilling in Alaska's Arctic National Wildlife Refuge. The House yesterday narrowly passed a tough $2.6 trillion budget that includes $69 billion in entitlement cost cutting, with as much as $20 billion in savings from Medicaid, the government's primary health program for the poor.

"Certainly it appears it is going to be challenging," said House Budget Committee Chairman Jim Nussle (R-Iowa).

On Wednesday, the Senate budget plan barely survived an effort to strip out parliamentary language opening the refuge to oil exploration and drilling. The language would protect drilling legislation from a filibuster, allowing it instead to pass with a simple 51-vote majority. But that parliamentary protection will happen only if the House and Senate agree on a compromise budget resolution for the fiscal year beginning Oct. 1.

Likewise, House and Senate budget writers hope to use the same parliamentary protections to begin tackling the growth of entitlement programs, such as agriculture subsidies, student loans and especially Medicaid.

But the Senate signaled that it may not have the will. By a vote of 52 to 48, senators moved to strip $14 billion in Medicaid cuts and instead establish a commission to explore policy changes to slow the program's growth. Senate Budget Committee Chairman Judd Gregg (R-N.H.) implored his colleagues to stick with the cuts.

"The essence of this budget is . . . whether or not our generation, the baby-boom generation, is going to be willing to stand up and admit we put too much on the books for our children to bear," Gregg said.

But opponents of the Medicaid cuts argued that federal and state policy experts should be given time to work out changes to the Medicaid system before Congress sets arbitrary spending limits on the program. "In good times and bad, the people you don't abandon or put at risk are the people in most need," said Sen. Gordon Smith (R-Ore.), who wrote the amendment with Sen. Jeff Bingaman (D-N.M.).

Ultimately, seven Republicans -- Smith, Lincoln D. Chafee (R.I.), Olympia J. Snowe and Susan Collins (Maine), Norm Coleman (Minn.), Mike DeWine (Ohio), and Arlen Specter (Pa.) -- joined all 45 Senate Democrats to block the Medicaid cuts.

The Senate then approved amendments to add $5.4 billion for education, $2 billion for health research, $2 billion for community development, $855 million for law enforcement and other first responders, $500 million to combat AIDS worldwide, and $78 million for small-business development.

After pulling back from spending cuts, the GOP voted to increase the size of the budget's tax cuts from $70 billion over five years to $134 billion. The additional $64 billion is intended to repeal a 1993 tax increase on Social Security benefits claimed by relatively wealthy seniors, but under budget rules the tax authority could be used for other purposes and would not be subject to a filibuster.

"This is not a perfect bill," Gregg conceded before the final vote. "This is not the bill I would choose if I had the magic wand."

The Senate's moves put House leaders into a difficult position. The House passed its budget 218 to 214, with 12 Republicans voting against it, some of them because the cuts were not deep enough for them. Rep. Adam Putnam (R-Fla.), a leading member of the Budget Committee, struck a conciliatory tone, saying House members are likely to accept spending numbers that are slightly higher than the House-passed budget. The Senate's language on the Alaskan wildlife refuge will provide a strong reason to compromise, he added, because a large majority in the House favors drilling in the area.

But leading conservatives signaled they are far less willing to compromise. "I think most House conservatives believe no budget is better than a bad budget," said Rep. Mike Pence (R-Ind.).

House Republican leaders portrayed their budget as a serious effort to gain control of a federal budget deficit that reached a record $412 billion the last fiscal year. The budget would cut non-security domestic spending at Congress's annual discretion from $394 billion to $391 billion in the next fiscal year. Under the budget, House committees would have until September to produce a bill that cuts entitlement spending growth by $69 billion over five years.

The cuts could come from agriculture, student loans, pension programs and environmental cleanup.

House Democratic leader Nancy Pelosi (Calif.) called the budget "an assault on our values and . . . a blueprint for fiscal disaster," with budget cuts to poverty programs making way for $106 billion in tax cuts assumed in the House budget.