Democrats controlling Congress presented a $2.9 trillion budget blueprint on Wednesday, ensuring a confrontation with President Bush over spending boosts for education and other domestic programs.
The Democratic plan promises a budget surplus in five years but would achieve it only by allowing some of Bush's tax cuts to expire.
The nonbinding plan for next year faced House and Senate votes Thursday. Democrats agreed to it after weeks of private negotiations between the chairmen of the House and Senate Budget committees. The House and Senate passed competing budgets in March.
The most immediate result would clear the way for action this summer on annual spending bills totaling $1.1 trillion for the budget year that begins Oct. 1. That figure includes $145 billion in sure-to-be-contested money for military operations in Iraq and Afghanistan.
A $23 billion increase for domestic agency budgets awards sizable increases for education, veterans and health care programs.
The White House opposes the increase and has promised vetoes of annual spending bills that break Bush's budget for such programs. His spending plan essentially would freeze them.
After a $214 billion deficit for the current budget year, the deficit would rise to $252 billion for 2008 but fall to $235 billion the next year, according to the Democrats' plan.
But by 2012, the Democratic budget promises a $41 billion surplus. It does so by assuming taxes on income, dividends and stock sales go up in 2011 instead of being extended, as Republicans and Bush call for.
Republicans credit the tax cuts, passed in 2001 and 2003, with reviving the economy. Most Democrats say the cuts favor wealthier people.
Tax cuts aimed at the middle class could be renewed under the compromise. That includes establishing a 10% rate on the first $12,000 of a couple's income, as well as relief for married couples, people with children and people who inherit large estates.
Extending the middle-class tax cuts would cost about $180 billion over 2011-12; extending the rest of the 2001 and 2003 tax bills would cost about $240 billion over the same period.
The Democratic plan would restore a "pay-as-you-go" rule that requires tax cuts or spending increases in benefits programs such as Medicare, children's health care or farm subsidies to be financed by spending cuts or tax increases elsewhere. The idea is not to worsen the deficit.
The budget plan, while nonbinding, sets goals for later tax and spending bills. It makes a statement about the priorities of majority Democrats and provides an early test for the party to prove it can govern.
But the need to pass the budget exclusively with Democratic votes forced lawmakers such as the Senate Budget Committee chairman, Sen. Kent Conrad, D-N.D., and his House counterpart, Rep. John Spratt Jr., D-S.C., to draw up a document with few if any politically risky initiatives.
Democrats took a pass on overhauling federal retirement programs such as Social Security and Medicare. They are threatened with insolvency in the decades ahead with the retirement of the Baby Boom generation.
Instead, Democrats hope to address shortfalls in benefit programs after the 2008 election as part of broader talks that also would determine the future of the Bush tax cuts.
"It's not the grand solution, but it's a good step in the right direction," Spratt told The Associated Press. "It nudges toward deficit reduction and if the numbers pan out we should have both a surplus and tax cuts in 2012."
The top Republican on the Senate committee, Sen. Judd Gregg of New Hampshire, said the Democratic plan would produce "the largest tax increase in U.S. history, billions in new spending, and no attempt to address the long-term fiscal crisis" in retirement programs and Medicaid, the health care program for the poor and disabled.
The Democratic blueprint produces its modest $41 billion surplus in 2012 with some shaky assumptions.
For instance, it does not provide for any spending on military operations in Iraq and Afghanistan after 2009. It also fails to provide money for a long-term fix to the alternative minimum tax, which threatens to ensnare about 20 million additional taxpayers unless the problem is addressed.
The Bush administration has promised to veto appropriations bills -- the 12 annual spending measures for Cabinet agency budgets -- that bust Bush's targets.
Democrats promise to fully fund Bush's 11% increase in the Pentagon's budget. The president, however, objects to their plans for increases averaging 5% for domestic agencies such as the departments of Education, Labor, Health and Human Services and Homeland Security.
The budget plan would allow Democrats to use fast-track procedures to overhaul college aid programs, providing billions of dollars in additional aid for students -- financed by reducing subsidies to lenders.
The special procedures allow Democrats to sidestep the possibility of a GOP filibuster in the Senate.