THE House voted Wednesday to reject a proposal incorporating all of President Bush's budget proposals by a vote of 427 to 1.
In response, the Republicans and the Bush administration offered a slimmed-down version of the president's plan, which was set for a vote yesterday.
The Democrats expected to easily beat back this Bush proposal as well. If defeated, the next vote will be on the alternative proposed by House Democrats.
This bill offers a two-year tax cut for middle-income people - $200 for singles and $400 for couples - paying for it by raising taxes on the wealthy. Couples with taxable income of more than $140,000 would see their top minimum income tax rise from 31 percent to 35 percent. And the measure would impose a 10 percent surtax on taxable income of more than $1 million annually.
There are also some breaks for the wealthy, including an indexation of capital gains and a tax break on passive income for real estate investors.
If House Democrats are able to pass their measure it will go to the Senate, which has yet to do its work. The Senate's tax writer, Finance Committee chairman Lloyd Bentsen (D) of Texas, began outlining the direction of his bill during an informal hallway news conference.
The centerpiece of his measure will be an increase in taxes on the very wealthy to help pay for helping middle-income families with children. Senator Bentsen would also include minor health-care reform, a cut in capital-gains taxes and other incentives to help investment.
White House domestic policy adviser Clayton Yeutter told the National Association of Business Economists that he was "not at all optimistic" about the possibility of a tax cut being enacted.