(Adds White House reaction)

By Richard Cowan

WASHINGTON, June 4 (Reuters) - The U.S. Senate on Wednesday passed a budget for the fiscal year starting Oct. 1 that would eliminate deficits by 2012 but puts off tough decisions on taxes and controlling the growing costs of health and retirement benefits for the elderly.

Over Republican objections, the Democratic-led Senate voted 48-45 for the nonbinding, $3 trillion fiscal 2009 budget that sketches out spending priorities for the next several years.

Sen. Barack Obama of Illinois, who has claimed the Democratic Party's presidential nomination, voted for the budget that could guide some of his economic decisions next year if he is elected president.

The House of Representatives also was expected to pass the measure this week -- the first time since 2000 that Congress managed to approve a budget blueprint in an election year.

Senate Budget Committee Chairman Kent Conrad, a North Dakota Democrat, said the budget "will strengthen the economy and create jobs."

"It will provide tax cuts for the middle class and it will restore fiscal responsibility by balancing the books by 2012 and maintaining balance in 2013," Conrad added.

Besides setting broad goals for federal spending and taxes, the budget also would allow the government to borrow more to service its debt. Its borrowing authority would rise to $10.615 trillion, from the current ceiling of $9.815 trillion.

White House Budget Director Jim Nussle accused Democrats of "repeating last year's tax and spend game plan," while Republicans in Congress also attacked the document.

"With rising gas prices and economic concerns, Congress needs to lower taxes on working Americans and job creators and rein in wasteful Washington spending," Senate Minority Leader Mitch McConnell of Kentucky said. He complained the budget "sets a new spending record."

Government spending has risen dramatically since Bush took office in 2001 and through the six years he enjoyed a Republican majority in Congress.

A budget surplus in 2001 quickly turned to deficit under Republican rule. Government debt rose from $5.7 trillion in 2001 to nearly $9.4 trillion now.

DEFENSE BUILDUP

The Democrats' budget would support the continuation of Bush's large defense buildup. It would spend about $21 billion more than he requested in his final fiscal plan submitted in February on roads and bridges, energy, education and other non-defense domestic programs.

Since the legislation is not submitted to Bush for approval, it does not have the force of law. Instead, it will be used to guide a series of spending bills Congress writes each year that are subject to presidential approval.

Like the administration's budget plan, this one claims to erase a long string of deficits. The nonpartisan Congressional Budget Office has forecast a deficit this year of nearly $400 billion, largely because of war costs and a weak economy.

The plan would produce an estimated deficit of $341 billion in fiscal 2009. Its backers claimed deficits would then fall rapidly and that the government would enjoy surpluses of $22 billion in 2012 and $10 billion in 2013.

But that does not take into account likely costs for the wars in Iraq and Afghanistan and it assumes that some of Bush's signature tax cuts will expire at the end of 2010.

Balanced budgets would not last long unless Congress and a new president who takes office on Jan. 20 act to rein in rising costs related to an aging population.

For example, Social Security retirement benefit costs are projected to increase from $581 billion in 2007 to more than $1 trillion in 2017, while Medicare health care for the elderly would grow from $436 billion to $841 billion.

(Editing by David Alexander and Alan Elsner)

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