Republican budget negotiators still plan to try to push a large tax cut through both chambers despite suffering a major setback on the overall size of the tax cut in the Senate this week.

Aides to both Senate Budget Chairman Don Nickles (R-Okla.) and House Budget Chairman Jim Nussle (R-Iowa) said the largest possible tax cut would come out of the House-Senate conference committee on the $2.2 trillion fiscal 2004 budget resolution.

“I believe we will come up with a growth package that will have a significant impact on the economy,” Senate Majority Leader Bill Frist (R-Tenn.) said following the Senate’s 56-44 passage of their version of the budget yesterday.

Still, both sides acknowledged that Senate Democrats and GOP moderates had won a small victory in that the tax cut will likely be less than President Bush’s economic stimulus plan to cut $726 billion in taxes, including a controversial $390 billion proposal to eliminate the double taxation of dividends.

“We’ve got to be able to send this conference report back to both bodies, so it’s a balancing act,” said Sean Spicer, spokesman for Nussle.

While Nussle was able to secure House passage of a budget resolution that calls for Bush’s full tax package, Nickles was not able to prevent GOP moderates, who were concerned about the costs of the war with Iraq and rising deficits, from cutting the Senate version of the president’s plan to $350 billion.

Nickles’ budget blueprint, which won the support of six Democratic moderates and four GOP centrists, might not have had the necessary support for initial passage without the dramatic reduction in the tax package. But Republicans are counting on their moderates’ unwillingness to prevent the Republican Party from passing a budget resolution a year after Democrats failed to do the same.

“I don’t think they would squelch the budget resolution,” one Senate GOP leadership aide said.

Republicans have urged GOP centrists, such as Sens. Olympia Snowe (Maine) and George Voinovich (Ohio), to hold their fire until the Finance panel actually begins to write the tax-cut measure. The budget resolution only sets aside the maximum possible figure for a tax cut.

Finance Chairman Chuck Grassley (R-Iowa), who will be charged with crafting the tax-cut bill, said he envisioned a tax cut from the budget conference that would allow him to create a tax package that was more than $450 billion but less than $600 billion.

“We’re not going to get $725 [billion], but we’re going to get a big enough figure from the House and Senate so we can make good tax policy,” Grassley said.

But Voinovich and Snowe said they weren’t necessarily going to roll over for their leadership on final passage of the budget resolution that emerges from conference.

Voinovich said he would not agree to a budget resolution “if the conference report is off-the-wall someplace, or if I feel they went hog-wild.”

Snowe agreed that the number should stay as close to the moderate’s compromise figure of $350 billion as possible.

“I hope the conference [report] will be more in line with what we think is realistic,” said Snowe. She would not rule out, however, voting for a conference report with a higher tax cut.

As much as Senate GOP moderates might want to keep the tax cut number low, House Republicans warned they may not be able to get their members to support a package that significantly undermines the president’s plan.

“If the number is too low, Chairman Nussle still has to be able to sell it back to his colleagues over here, and the number has to be seen as adequate,” said Spicer, who acknowledged Nickles’ problem as well. “He’s got to think about what he can sell back to his colleagues, and we’ll defer to him on what he can sell.”

Indeed, one Senate Budget aide said Nickles would likely be in constant contact with moderates whose votes he needs to secure passage of the conference report.

The tax package isn’t the only stumbling block facing the conference committee, but both sides said Nickles and Nussle share a similar fiscal philosophy that will likely make negotiations easier.

The Senate’s budget resolution is $16 billion more generous in discretionary spending than the House’s, a situation that will likely call for splitting the difference, according to one Senate GOP leadership aide.

The House and Senate must also reconcile vastly different allocations for mandatory spending, such as Medicare and Social Security.

The House only calls for $260 billion in new mandatory spending, while the Senate proposes $500 billion, including $400 billion to create a prescription drug benefit under Medicare.

The House version is lower because it directs its committees to find spending cuts in mandatory programs by rooting out federal waste and fraud. But Senate aides said putting that pressure on Senate committee chairs could be a much tougher proposition.