Bush Plan Reins In Domestic Spending
Proposal Aims to Balance Budget And Fund Wars

By Michael Abramowitz and Lori Montgomery
Washington Post Staff Writers
Tuesday, February 6, 2007; A01

President Bush took aim yesterday at domestic spending as part of a plan to balance the budget in five years without raising taxes while increasing funding for the Iraq war and permanently expanding the military.

With the $2.9 trillion budget he submitted to Congress, Bush signaled he would attempt to squeeze spending on health care, education, housing and other domestic programs important to the Democratic majority for the duration of his term. Overall domestic spending would be held below the rate of inflation in the fiscal year that begins Oct. 1 and frozen thereafter.

The new Bush budget would also seek to reduce the rapid rate of growth in Medicare and Medicaid, trimming $101 billion from the two programs over the next five years by reducing payments to health-care providers and forcing wealthier seniors to pay more for physician services and prescription drug coverage. And it would provide additional funds for the Children's Health Insurance Program, but not enough to maintain the same enrollment over the next five years, according to independent analysts.

Bush said his plan would bolster national security while "keeping the economy strong with low taxes and keeping spending under control." But Democratic leaders, who will control the budget process for the first time since Bush took office, immediately denounced the plan as an irresponsible attempt to make costly tax cuts for the wealthy permanent and to finance the war by shortchanging children, the elderly and the nation's long-term fiscal health.

"It is disingenuous for the president to suggest cuts to Medicare and Medicaid that he knows the Congress will not support," said House Ways and Means Committee Chairman Charles B. Rangel (D-N.Y.). "It's not going to happen."

Some Democrats also questioned the president's math, saying his budget plan relies on a series of rosy economic assumptions to transform the nation's $248 billion deficit into a $61 billion surplus by 2012. Even if the plan is successful, Democrats noted, the president would only be restoring the country's fiscal condition to the surplus he inherited when he took office in 2001.

"This budget is filled with debt and deception, disconnected from reality, and continues to move America in the wrong direction," said Senate Budget Committee Chairman Kent Conrad (D-N.D.).

While the spending blueprint met resistance from Democrats, it appeared to shore up the president's position with conservatives in his own party, who have been deeply unhappy with the growth of federal spending over the past six years. In comments to reporters yesterday, Bush emphasized his desire to reduce the number of congressional pork-barrel projects, known as earmarks, and acquire a line-term veto -- favorite initiatives of fiscal conservatives.

Extending Bush's first-term tax cuts, a collection of rate reductions and tax credits that has kept more than $1 trillion in taxpayers' pockets since 2001, would cost the Treasury an estimated $374 billion between 2008 and 2012, according to the administration. Most of the cuts are scheduled to expire in 2010.

Bush's advisers yesterday credited the tax cuts for the nation's healthy economy and said keeping them in place is essential to maintaining economic growth. A growing economy, in turn, they said, will continue to stimulate tax collections, making it possible to balance the budget even while paying increasing sums for the Iraq war.

White House budget director Rob Portman stressed that point in a briefing for reporters. "The cost of the war is reflected in the administration's deficit projections," he said. "In fact, there has been a $165 billion decrease in our deficit over the past two years, and that includes all of the war costs that we've incurred during that time."

Bush's proposed fiscal 2008 budget would provide another big boost in spending for the war and overall defense and diplomatic spending. The budget plan includes $623 billion for the military next year, including $141 billion for the wars in Iraq and Afghanistan and a $50 billion down payment on the president's plan to permanently increase the size of the armed forces by 92,000 over the next five years.

The State Department would receive nearly $35 billion, an increase of more than 20 percent over current spending estimates, plus $3 billion in emergency spending related to the administration's "global war on terror."

Federal agencies other than State, the Pentagon and Homeland Security would receive increases of about 1 percent over 2007 spending estimates, with requests for eight agencies -- including education and environment -- falling below fiscal 2006 levels.

Bush proposes a number of new initiatives, including a plan to boost the size of Pell grants to help students pay for college, a program to fund pilot projects to reduce traffic congestion and a new effort to raise $3 billion in public and private matching funds to improve national parks. But those programs' costs would be offset with cuts elsewhere.

For example, the Education Department's request for discretionary funding would rise $10 million over the 2007 estimate -- about 1 percent less than the agency received in 2006. The increase for Pell grants and an extra $1.2 billion for elementary and secondary education would be paid for in part by slashing subsidies to the banks that provide student loans and eliminating a student loan program for students at vocational and technical schools.

The Justice Department would get about a 1 percent increase, including substantial boosts for counterterrorism and counterintelligence programs and more than 220 new FBI agents. But law enforcement groups say the proposal would effectively cut grants and other assistance to local police by 75 percent at a time when violent crime is rising nationally.

And state officials complained that the president is seeking an 18 percent reduction in funds to provide heating assistance to 5.6 million low-income families, a proposal that would force states either to contribute more money or cut off assistance to about 1 million families.

Democratic budget leaders decried the cuts, many of which have appeared in previous Bush budgets.

"These things have been around the track numerous times and never made it to the finish line," said House Budget Committee Chairman John M. Spratt Jr. (D-S.C.). "It's doubtful they're going to pass."

House Speaker Nancy Pelosi (D-Calif.) also criticized the president for allowing the alternative minimum tax to expand to millions of additional families by 2012, subjecting them to substantial tax increases. The tax was originally conceived as a way to ensure that wealthy Americans did not escape paying taxes.

Grover G. Norquist, president of Americans for Tax Reform and a staunch administration advocate, said conservatives are likely to applaud the package. "By putting a line in the sand that says that 'You can -- and I have -- balanced the budget without raising taxes,' then the Democrats have to do the same," Norquist said.

© 2007 The Washington Post Company