Bush budget plan calls for boost to Pentagon, domestic spending cuts

WASHINGTON -- President Bush unveiled a $2.9 trillion budget Monday that rewards the Pentagon with a record $50 billion budget hike but pinches programs cherished by Democrats, including health research and heating subsidies for the poor.

In control of Congress for the first time in a dozen years, Democrats accused Bush of trimming domestic programs, using smoke and mirrors to predict a balanced budget in five years and ignoring a hidden tax threat to middle-class families. His $245 billion request for Iraq and Afghanistan has given lawmakers sticker shock.

Despite common agreement that something must be done soon about the spiraling cost of benefit programs such as Social Security and Medicare, Bush recommended mostly modest steps -- while refusing to consider tax increases that could draw Democrats into negotiations.

"There's a lot of skittishness on both sides about coming to the table," said Sen. Judd Gregg of New Hampshire, the top Republican on the Senate Budget Committee. "The White House is afraid of taxes and the Democrats are afraid of controlling spending."

Democrats went on the attack.

"The president has simply offered more of the same, proposing a budget that cuts ... from Medicare and Medicaid, while sending $240 billion more in American taxpayer dollars to Iraq," said Rep. Rahm Emmanuel, D-Ill. "This is not a tradeoff the American people want."

Bush touted his fiscal blueprint as "protecting the homeland and fighting terrorism, keeping the economy strong with low taxes and keeping spending under control." He said after meeting with his Cabinet, "Congress needs to listen to a budget which says no tax increase, and a budget, because of fiscal discipline, that can be balanced in five years."

Bush said $245 billion is needed for military and diplomatic operations in Iraq and Afghanistan over the next year and a half, bringing total Pentagon funding for the wars to $662 billion. But his budget assumes, at least on paper, that no additional war funding will be needed after 2009.

Bush also proposed modest cuts to the rapidly growing Medicare and Medicaid health care programs, but failed to address chronic shortfalls in future years that would force painful sacrifices on beneficiaries. Instead, Medicare providers such as hospitals, nursing homes and home care providers would face payment cuts, while higher-income beneficiaries would pay greater premiums.

Less ambitious Bush proposals went nowhere when Republicans controlled Congress last year, and the budget process broke down amid election-year acrimony. Health care providers promised to lobby hard to kill the proposals again.

"Today's budget is devastating news for children, seniors and the disabled who depend on the Medicare and Medicaid programs," said Rich Umbdenstock, president of the American Hospital Association. "They are being unfairly singled out to carry the burden of achieving a balanced budget."

The cuts to Medicaid would come in part from curbing payments to states for administrative costs, which advocates for the poor say would force states to pass those cuts on to the poor.

Democrats griped that Bush would meet his five-year balanced-budget goal by forecasting far higher tax revenue than nonpartisan congressional estimators expect. His budget predicts a $61 billion surplus in 2012, but the plan would generate almost $100 billion in red ink that year instead under more cautious Congressional Budget Office revenue estimates.

White House officials countered that their estimates are in line with mainstream economists and are produced by career professionals at the Treasury Department.

"Instead of painting a rosy scenario on revenue to get to balance, we take a cautious approach," said Budget Director Rob Portman.

Extending Bush's tax cuts, most of which are to expire in 2010, would cost $211 billion in 2012 and $1.6 trillion over the next decade, according to budget documents.

Iraq continues to weigh on the nation's finances, accounting for well over half of the current year's projected deficit of $244 billion. For 2008, the budget year that begins Oct. 1, Bush sees just a slight decline in the deficit to $239 billion. He expects the decline to continue until reaching a surplus in 2012, three years after he has left office.

Democrats challenged those projections, contending that Bush would achieve a surplus only by leaving out the many billions of dollars Congress is expected to spend to keep the alternative minimum tax from ensnaring millions of middle-class taxpayers. His budget includes an AMT fix for just one year.

In theory, this could be a productive year on the budget since there's no election. Also, it can be easier to make painful budget choices when there is divided government. That's because it's virtually impossible for one political party to pass politically painful cuts to programs such as Medicare all by itself, but the job can be made easier if both parties agree to make the leap.

Thus far, however, there's no sign of that. Bush is focused on Iraq and is sagging in opinion polls. He doesn't seem inclined to exert much political muscle on the budget, and Democrats won't take the lead on their own.

"The president really does have to play a leadership role and he's got to be willing to use up some of his capital," said Bob Greenstein, who heads the liberal Center on Budget and Policy Priorities. "And I just don't see it happening in the current environment."

Bush proposes to eliminate or sharply reduce 141 federal programs totaling $12 billion. But Congress has ignored these same recommended cuts in the past, including an attempt last year to kill the Commodity Supplemental Food Program, which provides nutritionally balanced boxes of food to about a half-million poor people per month.

Democrats also promised to restore cuts from low-income heating subsidies, Head Start for preschool children, rural health programs and the Corporation for Public Broadcasting by shifting some portion of Bush's big defense hike to domestic programs.

In addition, they are sure to again kill many proposed fees such as a medical care enrollment fee on higher-income veterans and higher co-payments for their prescription drugs. Congress has rejected both four years in a row. But Bush dropped a much-reviled increase in airline ticket taxes to pay for security screenings.

Bush is proposing a few high-profile spending boosts, such as an increase in the maximum Pell grant for low-income students, from the current $4,050 to $4,600. The $15 billion cost over five years would largely be borne by cutting subsidies to lenders issuing student loans.

The president's budget also includes an initiative -- billed as "dead on arrival" by Democrats -- to expand health care coverage to the uninsured. The complex proposal would give every family a $15,000 tax deduction for purchasing health coverage but would make current employee-supplied health coverage taxable for certain taxpayers.

Bush's plan would save most taxpayers money, but Democrats say it would lead many employers to stop providing health insurance.