Bush's budget swells deficit

WASHINGTON -- President Bush on Monday submitted a $3.1-trillion budget for the next fiscal year that reflected his strategy for dealing with a costly war and a troubled economy: substantially boost military expenditures, rein in domestic spending -- including for Medicare -- and more than double the deficit.

The proposal set the stage for a long election-year struggle, drawing sharp criticism from the Democratic majority in Congress as well as a scattering of Republicans concerned about the president's habit of leaving large chunks of the spending out of his annual budget blueprint.
 

The proposal calls for making permanent Bush's 2001 and 2003 tax cuts, which have been widely criticized as skewed to the rich and which would begin expiring next year. Doing so would cost Washington more than a half-trillion dollars in forgone revenue over the next five years and more than $2 trillion over the next decade, but the president has argued that they play an important role in stimulating economic growth.

The new budget would increase Pentagon spending by 8.1% -- to $518.3 billion, plus add an additional $70 billion to fight terrorism. By some measures, the combination is the 11th consecutive year of defense spending increases.

White House aides acknowledged that the new numbers don't reflect the full amount that will be needed to prosecute the wars in Iraq and Afghanistan over the next year. The president has regularly handled the conflicts as emergency spending and therefore outside normal budget channels.

Even as he sought to increase military spending, Bush proposed to slow substantially the growth of entitlement programs such as Medicare by as much as $208 billion over five years and eliminating or reducing various education, training, highway and environmental programs to cut an additional $18 billion-plus next year.

Bush's plans for defense and Medicare drew criticism from both sides of the aisle in Congress. Coming in an election year and being the first to break the $3-trillion mark, the budget blueprint seemed destined to set off an extended battle.

Sen. Judd Gregg (R-N.H.), the top GOP member on the Senate Budget Committee, said the latest Bush budget, which is the president's last, is disappointing because it "does not accurately reflect" expected war costs.

"I am concerned that this proposal will make it too easy for Congress . . . to return to shadow budgeting and ignore costs we already know will occur," he said. Gregg praised Bush, however, for attempting to curb the growth of Medicare.

But it was the proposed cutbacks for Medicare, the huge health insurance program for the elderly, and Medicaid, the state-federal health program for the poor, that drew the sharpest criticism from leading Democrats.

Max Baucus (D-Mont.), chairman of the Senate Finance Committee, called the proposed reductions "dead on arrival with me and with most of the Congress."

White House budget director Jim Nussle acknowledged that the federal deficit will double from $162 billion in fiscal 2007, which ended last September, to more than $400 billion in both fiscal 2008 and 2009. He attributed the increase entirely to the fiscal stimulus plan that Bush and House leaders have agreed on to help the economy.

The new budget portrays the deficit jump as temporary and shows Washington operating in the black for the first time in more than a decade by 2012.

But independent analysts said that the administration's prediction of vanishing deficits is based on a series of overly optimistic assumptions, among them that Congress will drop its temporary relief from the alternative minimum tax. That levy, originally created to assure that millionaires paid at least some income taxes, is increasingly biting upper-middle-class Americans.

The forecast of deficits ending by 2012 also assumed there will be no more war costs beyond the $70 billion in the new budget.

If, as seems likely, Congress continues AMT relief and war costs follow the least costly scenario advanced by the Congressional Budget Office, Congress' numbers-crunching arm, Washington will still be running deficits in 2012 and 2013.

In addition to omitting what critics see as unavoidable future expenses, the administration seems to have based its deficit predictions on an unusually sunny economic forecast.

The White House estimates that the economy will grow at a 2.7% rate this year, significantly faster than the CBO or many private forecasters predict. According to the administration's own budget documents, that one-point difference could mean a $37.1-billion addition to the deficit next fiscal year and more than a $250-billion addition over the next five years.

When it came to the war, Pentagon officials insisted Monday that next year's costs cannot be known, at least until Army Gen. David H. Petraeus returns to Washington next month to give his recommendations about how to proceed in Iraq.

Independent military analysts said the final number could be two to three times the $70 billion that the administration is using as a place-holder.