Deficit Is $521 Billion In Bush Budget

CBO has said a modest 10-year fix would cost $469 billion.

The budget will include a $1 billion increase for special education, a $1 billion addition for poor school districts and an $18 million increase for the National Endowment for Arts, a request that has infuriated some conservatives.

But Bush will ask for $256 billion for transportation programs, considerably less than the $318 billion that Senate Republicans hope to spend on a major transportation bill due to be completed this year, and far less than the $375 billion House Transportation Committee leaders want. Indeed, the most heated debate at the Philadelphia retreat came over the transportation funding, participants said.

Bush indicated to lawmakers that he would not accept an increase in the federal gasoline tax that the House is seeking, nor will he allow federal money not generated by the gas tax to fund the transportation bill, one participant said.

The Senate intends to take up its version of the bill tonight, meaning the first clash of the budget season could come in weeks.

Bush will renew his proposal to establish new retirement and tax-favored savings accounts, a proposal that would eliminate taxation on interest, capital gains and dividends for most Americans. But, congressional aides say, the primary motivation for keeping the proposals in the budget is the short-run deficit picture. Under the proposal, the Treasury Department expects millions of savers would close their traditional Individual Retirement Accounts to open the new accounts, paying taxes on the withdrawals now rather than later, when they retire. That would cost the government tax revenue in the future but would provide a $15 billion increase in revenue over the next three years, thus brightening Bush's bottom line.

The White House's $521 billion deficit forecast for 2004 is considerably higher than the $477 billion deficit projected by CBO, but Bush's $237 billion deficit for 2009 is mostly consistent with CBO's $239 billion forecast for that year. A White House official dismissed the discrepancy, saying, "It's not at all unusual for projections to be different."

But budget aides in both parties noted that the higher number makes it easier to say the deficit would be cut in half in five years. A higher deficit forecast now could also help Bush show progress when his budget office delivers its updated projection in July, congressional aides said.

"These numbers are not real," said Kahn, of the House Budget Committee. "The real numbers are that we're headed toward far bigger deficits as far as the eye can see. He's taken a bad situation and made it really bad."