UPDATE 2-U.S. Congress passes $2.9 trillion 2008 budget
(Updates with tax and borrowing details, quotes)
WASHINGTON, May 17 (Reuters) - The U.S. Congress on Thursday approved a $2.9 trillion fiscal 2008 budget that funds President George W. Bush's huge defense buildup while also adding money for Democrats' domestic priorities.
The budget, written by Democrats who control both chambers of Congress, received no backing from House Republicans, while only two moderate Republicans in the Senate supported it.
The measure claims to end chronic budget deficits and produce a $41 billion surplus in 2012. It provides for some of that surplus to be spent on renewing popular middle-class tax cuts.
But Republicans countered there was no guarantee such tax cuts, which expire at the end of 2010, actually would be renewed. And some Democrats have said they would like to let expire Bush's tax reductions for the wealthiest.
The fiscal plan would bring "the largest tax increase in history," said Sen. Judd Gregg of New Hampshire, the senior Republican on the Senate Budget Committee.
Senate Budget Committee Chairman Kent Conrad, a North Dakota Democrat, countered: "There is no tax increase assumed in this budget."
The budget does, however, make a one-year fix in the "alternative minimum tax" so that millions of middle-class taxpayers do not pay a tax originally designed for the wealthiest.
It also tries to bring more fiscal responsibility by insisting that future tax cuts or higher spending be paid for.
The House first voted 214-209 to approve next year's fiscal blueprint. The Senate followed quickly, voting 52-40 for the budget and giving Democrats bragging rights by passing a bill viewed by many as one of Congress' most basic responsibilities. Republicans failed to pass a budget last year even though they controlled Congress and the White House.
Republican opponents complained about the approximately $23 billion in added domestic funding next year, mostly for veterans, poor children and education.
The budget approved on Thursday was a compromise version of resolutions passed by the House and Senate in March.
Included in the measure is a 10.5 percent increase in the regular Pentagon budget and full war funding that Bush requested for combat in Iraq and Afghanistan next year.
BUDGET NON-BINDING
"This budget moves us to balance over the next five years. Along the way it posts smaller deficits than the president's budget," said Democratic Rep. John Spratt of South Carolina, the chairman of the House Budget Committee.
Republicans sketched out a different picture.
"What this budget says is tax more and spend more," said Rep. Paul Ryan of Wisconsin, the senior Republican on the House Budget Committee.
With deficits seen continuing through 2011, the budget raises the U.S. debt limit by allowing the Treasury Department to borrow up to $9.185 trillion, an $850 billion increase from current law. The higher debt limit has been automatically approved by the House, with passage of the budget. But a separate vote would have to be held in the Senate.
The budget plan does not attempt to fix the spiraling costs of federal retirement and health-care programs, a problem that will become particularly acute in a decade or so as more "baby boomers" reach retirement age.
Democrats say separate bipartisan negotiations would have to tackle that problem.
The budget plan is non-binding legislation that is not sent to the president for his signature.
It provides Congress with directions on the overall size of government programs in the fiscal year starting Oct. 1, which will be funded later in the year through a series of appropriations bills.
On May 11, White House budget director Rob Portman warned Congress that he would recommend vetoes of spending bills that exceed Bush's spending request.
(additional reporting by Kevin Drawbaugh)
