Bush's Budget Wins May Cost Him

By Jonathan Weisman
Washington Post Staff Writer
Saturday, December 15, 2007

As Congress stumbles toward Christmas, President Bush is scoring victory after victory over his Democratic adversaries. He has beaten back domestic spending increases, thwarted an expansion of children's health insurance coverage, defeated tax hikes, won funding for the war in Iraq and pushed Democrats toward shattering their pledge not to add to the federal deficit with new tax cuts or rises in mandatory spending.

But the cost of those wins could be high, both for the federal debt and for the president's own priorities.

Bush's steadfast stand against Democratic spending, coupled with his equally resolute opposition to tax increases, could raise the federal debt this fiscal year by nearly $240 billion. As Democrats struggle to meet his demands, they are jettisoning renewable-energy and conservation incentives that Bush championed, and they may ax some of his most cherished programs.

Even some Republicans bristle at the president's inflexibility. Bush has pledged never to sign bills with tax increases, even tax increases that he once supported.

"I see the president trying to play catch-up in two years for not vetoing anything in the first six years, and probably regretting that he treated the Republican Congress with softer gloves than he did a Democrat Congress," said Sen. Charles E. Grassley (Iowa), the conservative ranking Republican on the Senate Finance Committee. "He's kind of waking up to the necessity of having a certain policy that ought to be consistently followed, even if it's irrational."

White House officials -- and virtually every other Republican in Congress -- are not about to apologize. "The Democrats are learning this isn't the early 1970s, when the Republican Party was Gerald Ford and 140 of his friends," said Rep. Tom Cole (R-Okla.), chairman of the National Republican Congressional Committee. "There are 201 of us, and we will be heard."

In his first six years in office, Bush accepted domestic discretionary spending increases from Republican-controlled Congresses that averaged 7 percent a year, said Brian Riedl, a conservative budget analyst at the Heritage Foundation. In his showdown with the current Democratic Congress, the president is insisting on spending growth of 4 percent at most.

But as he stood his ground, first against $22 billion in additional domestic spending, then against $11 billion, Bush steadfastly opposed Democratic efforts to raise taxes to recoup the cost of a $50 billion measure that would stave off the growth of the alternative minimum tax (AMT). The parallel tax system was created in 1969 to ensure that a few rich Americans could not avoid paying taxes altogether, but because it was not indexed to inflation, it now threatens more than 20 million upper-middle-income households.

If, as expected, Congress passes a bill without making up the lost revenue, the cost to the Treasury would swamp the savings from Bush's spending fight.

The president also has taken to the White House's bully pulpit week after week to demand nearly $200 billion for the wars in Iraq and Afghanistan, without tax increases or spending cuts. If the president prevails on all three fronts, he will end up adding about $239 billion to the federal deficit this fiscal year.

"I have difficulty seeing how $11 billion or $22 billion in discretionary spending on the domestic side of the equation is so fiscally irresponsible when juxtaposed against these major AMT provisions of $50 billion, or certainly against the $70-plus billion they want for the global war on terror, Iraq and Afghanistan," said G. William Hoagland, a Republican budget adviser to former Senate majority leader Bill Frist (Tenn.). "It doesn't pass the sensible man's test."

As Democrats shuffle funds to meet Bush's bottom line, the White House also is likely to lose half of the $3 billion the president requested for his Millennium Challenge Corp., an effort to increase development assistance to some poor nations. Bush's program to resume the reprocessing of nuclear waste will be cut dramatically. A $579 million increase for math and science instruction under the No Child Left Behind initiative will be cut, and the Reading First program will be reduced, Democratic aides said Friday.

Bush's victory against much of the Democrats' energy bill also came at a price. A comprehensive bill will be signed into law, but the president defeated $21 billion in revenue increases that would have paid for tax incentives to support renewable energy, conservation and other programs that he has vocally supported.

"It's ridiculous," Grassley fumed. "He has compromised his own position."

The biggest revenue-raiser would have done away with a tax incentive that the five largest oil companies have enjoyed for three years. That break came about as Congress was considering tax incentives to spur manufacturing exports; the oil companies -- among the largest importers in the country -- successfully lobbied to be declared manufacturers, making them eligible for a new tax break.

At the time, Bush opposed more tax incentives. "I will tell you, with $55 oil, we don't need incentives to oil and gas companies to explore," he told a gathering of newspaper editors. "There are plenty of incentives." Grassley said Bush personally reiterated that position to him in 2006, during a private White House session on taxes.

This time around, Bush and Republican leaders declared that a repeal of such incentives would amount to a "massive" tax increase.

"What is clear is that raising taxes on oil producers will not lower the price of gasoline," said White House spokesman Tony Fratto. "And raising the price of gasoline is not what Americans need today. . . . We do not need a tax increase."

Bush's aversion to any tax increase -- no matter the size or the target -- has led directly to the death of a number of measures. Bush opposed a Democratic plan to pay for the AMT "patch" largely by forcing wealthy managers of hedge and private-equity funds to pay ordinary income tax rates on their earnings. Currently that income is classified as capital gains and taxed at 15 percent.

When that measure fell to a filibuster, House Democrats tried again, this time paying for the AMT bill by preventing hedge fund managers from putting compensation in offshore tax havens. Again, Bush opposed it.

Fratto called such proposals "very typical of tax policy based on populism and class warfare, rather than sound economic policy."

Democrats said Bush was not nearly so averse in the past to using tax increases to deal with losses from the AMT. In 2005, he empaneled a tax reform commission, entrusting it to, among other things, repeal the AMT without costing the Treasury any revenue.

That would have meant eliminating a tax that brings in $1 trillion over 10 years and making up the lost revenue with tax increases somewhere, said Tom Kahn, Democratic staff director of the House Budget Committee.

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