WASHINGTON
Senator Bill Frist of Tennessee, the majority leader, said he had decided to jettison the provision, which would have generated billions of dollars by changing the way businesses treat inventories for tax purposes. Instead, he said the Senate Finance Committee would hold hearings on the plan "later this year, so the pluses and minuses of the provision can become well known."
The retreat came after a torrent of objections from business leaders and their advocates, who typically view Republicans in Congress as allies. They said they had been blindsided by the inclusion of the proposal as a central element of the Republican leadership's energy package late last week.
The centerpiece of the leadership proposal, a $100 rebate check to compensate taxpayers for higher gasoline prices, continued to receive a rough reception. Members of the public have telephoned and written to ridicule the idea, and even Republican lawmakers are finding fault.
"Political anxiety in an election year is to blame for a lot of the bad bills Congress passes," said Representative Jeff Flake, Republican of Arizona, who on Monday called the rebate a "knee-jerk populist idea" that voters would see through.
Democrats are trying to rally voters against Republicans, pointing to the rising fuel costs as evidence of how consumers were hurt by the opposition's ties to the oil industry.
The Republican energy package was assembled quickly last week after lawmakers returned from a recess punctuated by public complaints about the rapidly rising gas costs . Senate officials acknowledged privately that they were paying a price for rolling out the proposal before having time to vet it fully.
Besides the tax provision and the rebate, the measure includes new protections against price gouging, incentives to expand domestic oil refinery capacity, support for new energy initiatives and tax incentives for buying hybrid vehicles.
Outside Congress, experts have said the government has few realistic options that would quickly reduce gas prices. And as lawmakers struggle to gain political advantage on the issue, they must juggle the often competing goals of curbing prices, increasing production and tamping down populist anger about oil industry profits.
Major trade groups quickly and vociferously registered their disdain for the tax provision, saying the plan amounted to a hefty new tax not only on the oil industry, but also on many manufacturers, wholesalers and retailers that rely on large inventories as well.
"This just came out of the blue," said Dorothy Coleman, vice president of tax and domestic economic policy at the National Association of Manufacturers. "Before you make a change in longstanding tax policy — I am talking 70 years or so — you don't just up and do it in an energy bill."
At the National Retail Federation, Rochelle Bernstein, vice president and tax counsel, said lobbyists there immediately raised a red flag with lawmakers and aides. "Our concern was did they understand what they were doing, did they know this was a proposal that could have wide-ranging implications?" Ms. Bernstein said.
One leadership aide who did not want to be identified as discussing internal deliberations said the decision was made to drop the provision rather than have the energy proposals caught up in a secondary tax fight. It remained unclear how quickly the leadership might move to bring its plan to the floor but it appeared unlikely to be added to the emergency spending bill the Senate is considering this week.
Though the Senate previously approved a more narrowly defined proposal to require the accounting change for major oil companies, the plan announced last week would have extended to all business sectors. It would have represented a major shift in policy for Congressional Republicans, who have wrapped their economic approach around tax cuts rather than increases.
The decision to drop it eliminates a chief source of revenue to pay for the rebate checks to be mailed to an estimated 100 million taxpayers. After the tax plan was dropped, Mr. Frist said money to pay for the rebate program could be generated by opening the Arctic National Wildlife Refuge to oil and gas drilling, another element of the plan. But the drilling initiative, previously rebuffed in Congress several times, faces serious opposition of its own and the revenues would not be realized for years.
Senator Harry Reid of Nevada, the Democratic leader, called the decision to drop the tax proposal "just another example of the Bush Republicans' inability to break their ties to big oil."
There were no estimates of how much money the change would have produced, though it had been projected at more than $11 billion in the past. The proposal in a separate tax bill to bar the accounting practice known as last in, first out for the oil companies was estimated to raise about $4.3 billion from them alone. That idea is still part of the continuing tax negotiations. But whether it will be in the final measure is unclear, and President Bush has threatened to veto it.
Business advocates said taxes could have been driven up significantly by ending the practice that allows companies to record sales from inventory at the higher, current cost of acquiring or producing the goods rather than a potentially lower original price.
Some panicked executives told their Washington representatives the increase could be from $30 million to $60 million for their individual companies alone.
"When this deal first surfaced late Thursday, the business community was just shocked," said Bruce Josten, at the United States Chamber of Commerce. "Instantly, if not rather simultaneously, people started making calls to the Senate leadership, to the staff of the Senate Finance Committee. It was the wholesalers, the manufacturers, the mass retailers."
Jade West, senior vice president at the National Association of Wholesaler-Distributors, said she learned about the full reach of Mr. Frist's proposal at midafternoon on Thursday and did not believe the report at first.
When Ms. West polled some of the association's largest members, all of whom juggle large inventories, their response was frantic. One called the proposal "dumb and irrational," she said. By Friday, the wholesalers had mobilized an e-mail campaign that resulted in about 350 letters to the Senate by Monday morning.
The Retail Industry Leaders Association, a trade group representing about 400 businesses including Wal-Mart and Target, began rallying their big-box store members first thing Friday.
"It was just surprising that they didn't see the writing on the wall, they didn't see the opposition that this provision would face," said Shannon Campagna, the organization's vice president for government affairs. "They didn't have their ear to the ground."
