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Deficits Force Widespread Cuts in Bush Budget
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By Adam Entous and Caren Bohan

WASHINGTON (Reuters) - President Bush (news - web sites) proposed on Monday cuts in more than 125 government programs in his $2.4 trillion election-year budget, but even fellow Republicans were skeptical he could meet his goals to reduce record federal deficits.


Reuters Photo



After inheriting a record surplus, Bush has overseen a dramatic worsening of the budget picture which is expected to yield a record $521 billion deficit this year. He hopes to improve his fiscal image before the November election by promising to reduce the deficit by a third next year and in half by 2007.


To get there, he is asking Congress to terminate 65 major programs and reduce another 63, reserving the bulk of new federal spending for homeland security and defense.


The White House still expects the budget shortfall to total $1.35 trillion through 2009 and government debt to rise from $8.1 trillion to $10.5 trillion, prompting warnings from Democrats that chronic deficits would crowd out private investment, drive up interest rates and slow economic growth.


"We went through a recession, we were attacked and we're fighting a war. These are high hurdles for a budget and for a country to overcome and yet we've overcome them," Bush said of his budget, which would cut funding for about half of the 15 Cabinet-level agencies.


He said he was "confident" his deficit targets would be met, but fiscal conservatives expressed doubts.


Already members of both parties are bracing for a bitter fight that could stretch through the campaign season and are questioning whether any budget deal can be reached.


The administration acknowledged its budget omitted expenses that will increase the deficit, including up to $50 billion in fiscal 2005 to keep U.S. troops in Iraq (news - web sites) and Afghanistan (news - web sites).


DEFENSE, HOMELAND SECURITY PRIORITIES


William Niskanen, head of the libertarian Cato Institute, called Bush's budget "wishful thinking." Rep. John Spratt (news, bio, voting record) of South Carolina, the ranking Democrat on the House Budget Committee, said it was "neither credible nor realistic."


In line with his campaign priorities, homeland security and the military will be the budget's biggest winners with rises of nearly 10 percent and 7 percent, respectively.


Defense contractors including Boeing Co. and Northrop Grumman Corp. stand to benefit as Bush's $401.7 billion military budget increases spending on missile defense and on modernizing the Army.


To placate conservatives threatening a revolt, growth of discretionary spending outside of homeland security and defense would be capped at 0.5 percent. Because that is well below the inflation rate, it amounts to a cut in domestic programs and the lowest growth since 1993.


Among the hardest hit were agriculture, transportation, environmental and small business programs. The deepest cut was a proposal halve discretionary spending at the General Services Administration.


Bush set the goal of bringing this year's record $521 billion shortfall down to $364 billion in fiscal 2005, to $241 billion in 2007 and then to $237 billion in 2009. There is no talk of surpluses in the foreseeable future.


ELECTION-YEAR FIGHT


Democrats scoffed at Bush's plan to stem the red ink while asking Congress to make permanent his tax cuts. "It's the most anti-family, anti-worker, anti-health care, anti-education budget in modern times, and it doesn't deserve to pass," said Sen. Edward Kennedy (news, bio, voting record), a Massachusetts Democrat.





Fiscal conservatives accused the White House of relying on gimmicks, like stretching the definition of homeland security to sidestep its own spending limits.

Even a spending freeze in areas targeted by Bush would cut the deficit by just $3 billion, according to some Republicans.

Conservatives want much deeper cuts after the White House acknowledged its prescription drug plan would cost one-third more than initially advertised. Spending under Bush has grown at the fastest pace since the Johnson administration of the mid-1960s, they complain.

Some conservatives are already urging Bush to veto costly highway and energy bills.

Bush put the onus on Congress to stick to his budget guidelines and his budget director, Joshua Bolten, said, "We do expect to take a firm line."

If so, Democrats warned of painful cuts in popular programs ranging from veterans' medical care to medical research and law enforcement.

The budget also assumes that $2.4 billion will be raised from leasing out part of Alaska's Arctic National Wildlife Refuge (news - web sites) for oil drilling, a proposal that went nowhere last year and that Democrats have vowed to block.

Some tax breaks favored by Republicans will also be reined in, including some for energy production and business investment.

As well, Bush will delay until after the election the budget-busting reform of the alternative minimum tax, which requires a growing number of middle-income taxpayers to calculate their taxes in two ways and pay the higher bill.




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Bush, Bush, Bush. . . what is we gon' do.