WASHINGTON—Even as President Barack Obama signed a broad, bipartisan tax law, battle lines were being drawn over spending cuts and Mr. Obama's health-care law, setting up the likely first big fights in the new Congress.
Senate Republicans, facing an uproar from tea-party activists, rose up late Thursday to scuttle a $1.1 trillion spending bill, turning their backs on billions of dollars in projects that they had championed.
In the process, they showed the power fiscally conservative activists now hold over even the most seasoned lawmakers.
The death of the spending bill was a setback for the White House, coming just as the president was celebrating his victory in forging the tax package with Republican lawmakers. Mr. Obama has spoken out against the spending known as "earmarks"—specific projects inserted by lawmakers for their states and districts—which have also irked the tea party. But he also had $1 billion in the bill to begin implementing his health-care law.
"By approving this bill, we would have helped cement for another year massive increases in spending and helped pave the way for a health-care bill most Americans are asking us to repeal," Senate Minority Leader Mitch McConnell of Kentucky said on the Senate floor Friday.
Because Congress never approved funds for the health-care law, Republicans will have an easier time blocking funding set to begin in 2011 to hire staff and create the administrative structures necessary to implement it. Rep. Hal Rogers (R., Ky.), incoming chairman of the House Appropriations Committee, has said health-law funding would be one of the first things he examines when he draws up a package of spending cuts after he takes over the committee in January, a Republican congressional aide said.
The president is pushing Congress for a yearlong resolution funding the government at current levels. That would put off the looming battle with resurgent Republicans to fund health care, but could also set back implementation of the program.
But Republicans want a short-term funding bill so they can start the fight with the White House over government spending sooner rather than later.
Congress passed a very short-term measure Friday to fund the government from Saturday through Tuesday. The measure, passed by a unanimous voice vote in each chamber, averts a government shutdown midnight Saturday, when the budget legislation would have expired. The threat of a shutdown remains if Congress doesn't pass a longer-term funding bill by midnight Tuesday.
The demise of the spending bill was all the more dramatic because of what Republicans gave up. The two senators with the most earmarks in the bill were Republicans, according to the nonpartisan Taxpayers for Common Sense, which opposes earmarks and closely tracks them in spending bills.
Together, Sen. Thad Cochran (R., Miss.), the ranking Republican on the Senate Appropriations Committee, and his Mississippi colleague, Sen. Roger Wicker, had 517 earmarks worth more than $1 billion in the spending bill, according to the group.
Senate Appropriations Committee Chairman Daniel Inouye (D., Hawaii) came in third with 161 earmarks worth $421 million.
Mr. McConnell, who helped lead the rebellion and crowed over the victory, lost 48 earmarks for his home state of Kentucky, totaling $113 million.
Indeed, most Republicans who rose up angrily against the legislation were confronted by reporters about the projects they once had championed, including Sen. John Cornyn (R., Texas), chairman of the National Republican Senatorial Committee, and Sen. John Thune (R., S.D.), a potential White House hopeful in 2012.
Senate Majority Leader Harry Reid (D., Nev.) pulled the bill late Thursday, saying that nine Republicans who had indicated they would vote for the spending bill had abandoned it.
On Friday, Mr. Reid fumed that the Republicans were "caught with their hands in the cookie jar" by tea-party activists whom the GOP leaders could not stand up to.
By killing the work of the appropriations committee, which drafted the bill, the GOP sank some carefully crafted shifts in funding, Mr. Reid said, including $237 million for more border control the Republicans had demanded, $52 million for nuclear-materials detection at airports and sea ports, $900 million for new military helicopters for U.S. forces in Afghanistan, $228 million to improve armored vehicles and $600 million in additional funds to treat returning veterans from Iraq.
Some Democrats, such as Sen. Chris Dodd of Connecticut, said opposition to earmarks was a fig leaf for Republicans with other motivations, mainly to launch a fight over spending as soon as they take control of the House.
But the death of the omnibus package could signal a real retreat for the power of congressional appropriators, whom Sen. John McCain (R., Ariz.) has said belong to their own political party separate from Republicans and Democrats. As many as nine Republicans, led by Mr. Cochran, had initially sided with Democrats to move the bill forward. But under pressure from Mr. McConnell, Mr. Cochran reluctantly backed down.
Anti-spending Republicans credited the tea party and the rising power of the conservative grass roots.
"This bill never would have been defeated if not for the outcry from taxpayers across America," Sen. Tom Coburn (R., Okla.) said.
A prominent tea party group, the Tea Party Patriots, claimed a role in pushing some of the Senate Republicans to withdraw their support from the spending bill.
"You should be proud of your efforts in this victory,'' the group said in an email to supporters. "We are not going to take anything for granted and are still watching the bill closely. For now, enjoy the victory."
Presumptive House Speaker John Boehner (R., Ohio) has said he wants to reduce spending to 2008 levels, which could entail cuts of more than $50 billion in the current fiscal year.
Those cuts could come in the form of efforts to slash funding for dozens of new health-overhaul provisions, including new prevention and wellness programs, nursing work-force training and emergency-care coordination programs, among others.
Conservative activists already are targeting programs such as ethanol and agriculture subsidies, but any trims in those areas would likely prompt fierce resistance from lawmakers and constituents who support them.
Also at risk is funding to gear up enforcement of some of the new financial-industry regulations called for in the Dodd-Frank bill that Democrats passed in response to the 2008-2009 Wall Street crisis. The Securities and Exchange Commission and the Commodity Futures Trading Commission are most vulnerable to budget cuts.
The heads of both agencies say they need hefty budget increases to hire hundreds of additional staff and make crucial technology upgrades to carry out the missions the financial law has given them.
The CFTC is in a particularly tight spot, as the law greatly expands the size and complexity of the universe the agency oversees, from the $40 trillion futures marketplace to the nearly $300 trillion swaps market.
Gary Gensler, chairman of the CFTC, has said he has enough resources at his tiny 680-person agency to finish writing the rules. "Where we definitely do not have the people is for implementation," he said in a recent interview. "We need the funding and the resources to go along with these new regulatory functions."
Democrats likely will fight big funding cuts. But they will be faced with the difficult choice of either swallowing some cuts to health-law funding or blocking a broader measure to fund the government's operations.
The Republican strategy on health care has risks. Many of the provisions set to receive funding next year are consumer-friendly or have received previous support from Republicans. For instance, one of the programs set to receive federal funding under the law next year is an effort to explore medical-liability lawsuit alternatives, which is one of Republicans' top ideas for lower health costs.
Republicans say Democrats are overstating the difficulty of cutting spending. Mr. Coburn, who is working with Sen. Richard Durbin (D., Ill.) on a bipartisan spending-cut plan, said cuts could be found for example in military procurement, fraud in the Medicare and Medicaid programs, and duplication of bureaucratic effort.
"We have 105 programs to encourage people to go into science and technology and 270 job-training programs," Mr. Coburn said. "Let's save one program that really works."
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