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Senate panel passes budget plan

By Donna Smith

WASHINGTON (Reuters) - A Senate panel on Thursday passed a budget that would cut near-term deficits more quickly than the plan proposed by President Barack Obama but puts off long-term decisions on major tax and spending issues.

The Senate Budget Committee approved the budget blueprint on a mostly party line vote of 12-10, setting the stage for a partisan battle over U.S. tax and spending priorities later this year.

The proposal includes language that would prevent Senate Republicans from blocking some Democratic priorities aimed at promoting job growth.

The non-binding resolution calls for a temporary freeze on non-security domestic spending and would reduce budget deficits to 3 percent of the economy by 2015 from 9.8 percent this year. Obama's fiscal 2011 budget plan released in February projected the deficit falling to 3.9 percent of the economy by 2015.

Bringing annual deficits down to 3 percent of Gross Domestic Product within five years would be a "major accomplishment," said Budget Committee Chairman Kent Conrad. "That is a 70 percent reduction in the deficit."

The deficit is expected to be $1.4 trillion this year. The Senate budget plan anticipates a $545 billion deficit in 2015. Obama's plan saw the deficit at $752 billion in 2015.

The budget has to be passed by the Senate and will serve as a guide for tax and spending bills various Senate committees will write for fiscal year 2011, which begins on October 1. It also sets the stage for longer-term efforts to bring deficits under control.

But those decisions on long-term tax and spending policies will await recommendations from the president's commission on fiscal responsibility and reform, Conrad said.

The commission will hold its first meeting next week and Obama is scheduled to speak to the bipartisan panel.

Investors and voters are becoming increasingly alarmed by huge budget deficits and long-term fiscal imbalances made worse by the economic crisis. The mounting red ink is likely to be a major issue in November congressional elections.

"I'm very focused on dealing with this long-term deficit and debt situation," Conrad said.

The Senate budget plan anticipates Congress putting off major decisions on tax policy until after the commission makes its recommendations, expected by the end of the year.

Meanwhile, the Senate budget plan includes provisions to continue some of the middle class tax breaks enacted under President George W. Bush, which it anticipates tax breaks for the wealthy will expire.

The proposal calls for reinstating the estate tax at 2009 levels for two years. The estate tax expired at the end of last year, but if Congress fails to act it will go back into force next year on estates worth more than $1 million with a top tax rate of 55 percent.

The Senate budget plan provides for exempting estates worth up to $3.5 million for individuals and $7 million for couples. After that, estates would be taxed at a 45 percent rate. But it will be up to the Senate Finance Committee to write the details of any tax law changes.

The budget plan also provides two years of alternative minimum tax relief for millions of taxpayers.

And it anticipates that the president's deficit commission will decide on a more permanent way to deal with the tax, originally intended for the most wealthy Americans but now hitting more middle-class taxpayers.

It is unclear when the Senate will take up the budget resolution. It is also unclear whether the House of Representatives will adopt a budget resolution this year. Democratic leaders in the House have said they are still weighing the issue, but Conrad said he expected the House to act on a plan.

(Reporting by Donna Smith; editing by Todd Eastham)