U.S. lawmakers move toward passing FY 2010 budget

By Richard Cowan and Jeremy Pelofsky

WASHINGTON (Reuters) - The Democratic-controlled U.S. Congress on Thursday moved toward passing a federal budget that embraces President Barack Obama's initiatives on healthcare, energy and education but leaves the government deeply in debt for the foreseeable future.

The House of Representatives and Senate were poised to approve slightly different, less expensive versions of Obama's $3.55 trillion budget plan for fiscal 2010 starting October 1.

Passage of the budget bills would be a political victory for Obama, who has said the big increase in spending is central to his plan for rescuing the recession-mired U.S. economy.

Democrats, who control both chambers, were expecting little to no support from Republicans, who offered alternative plans to slash domestic social spending and offer hefty tax cuts -- but failed to garner enough support.

In the Senate, by a vote of 60-38, lawmakers defeated an amendment offered by 2008 Republican presidential nominee John McCain to limit increases to the inflation rate on spending for scores of government operations -- from social programs and law enforcement to space exploration. McCain's amendment would have let military and veterans funding grow beyond inflation.

His amendment also sought to extend tax cuts approved during the Bush administration that expire at the end of 2010.

"It's time for some tough love. That's what this budget proposal is," McCain said before losing the vote.

A compromise version of the House and Senate Democrats' measures is expected to take form in coming weeks. The budget legislation is a nonbinding spending blueprint that guides later tax and appropriations bills.

"We think we have the votes. We think it will pass" later on Thursday, House Majority Leader Steny Hoyer told Reuters.

Republicans in both chambers generally want significantly less spending on domestic social programs, more money for the U.S. military and a continuation of tax cuts that were a central tenet of the departed Bush administration.

But their proposals also would result in severe budget deficits over the long-term, in the range of $500 billion annually or more. Obama's budget, according to the nonpartisan Congressional Budget Office, would produce higher annual deficits in the $650 billion to $750 billion range.

The House measure includes special language to allow for speedier consideration of legislation to overhaul the $2.5 trillion U.S. healthcare system. The Senate budget does not. Republicans in both chambers and some Senate Democrats oppose the move, known as reconciliation.

"At the end of the day, if bipartisanship does not yield healthcare reform, then we will have to move to reconciliation, and we hope that will be the course that the Senate agrees to take as well," said House Speaker Nancy Pelosi.

SETTING PRIORITIES

Senators adopted proposals aimed at preventing cuts to the tax deduction for charitable contributions in order to raise revenue for healthcare reform. They also called for greater oversight over the $700 billion financial bailout program.