Washington ? The Senate revived the backbone of President Bush’s formula for stimulating a laggard economy Thursday, narrowly passing a $350 billion package of tax cuts that would suspend all taxes on stock dividends for three years.

The Senate voted 51-49 for a bill less than half the size Bush sought but one that advances previously scheduled reductions in income tax rates, provides $20 billion in new aid to state and local governments and raises taxes for a few.

The legislation also would increase the child tax credit from $600 to $1,000, gradually eliminate the marriage penalty and encourage new investment by small businesses by allowing them to write off $100,000 in new equipment purchases.

Sen. Charles Grassley, R-Iowa, chairman of the Senate Finance Committee, said he hoped to begin negotiations next week with the House, which this month passed its own package of $550 billion in tax cuts through 2013.

Bush had asked Congress to abolish taxes on dividends paid to investors at a cost of $400 billion over the next decade, arguing that corporate profits are now effectively taxed twice, once at the corporate level and again by stockholders on the dividends paid to them.

The House instead voted to reduce the top rate on them, as well as capital gains, to 15 percent. Dividends and capital gains are now taxed at maximum rates of 38.6 percent and 20 percent respectively.

The Senate bill chops dividend taxes in half this year, suspends them entirely in 2004, 2005 and 2006, and restores them in 2007, at a total cost of $124 billion.

Democrats derided the dividend tax suspension, saying it would come at the expense of married couples whose tax breaks were scaled back.

To hold the votes of moderate Republicans, the package includes $20 billion in new Medicaid and other aid to states and tax and fee increases totaling $90 billion.