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Bush's Budget Projects Deficits

By Michael Abramowitz and Jonathan Weisman
Washington Post Staff Writers
Tuesday, February 5, 2008; A01

President Bush yesterday unveiled a $3.1 trillion budget plan for fiscal 2009 that will leave deficits of more than $400 billion this year and next, forcing his successor to grapple with a range of unpalatable choices to close the gap, according to lawmakers and budget experts.

Under the budget sent to Congress yesterday, Bush would freeze most domestic spending and limit payments to hospitals and other providers as part of an effort to slow the growth of Medicare. Because of plans to send tax rebates to most Americans under an economic stimulus program, the deficit would grow in the short term but would fall to zero by 2012 if Congress adopts the spending restraints Bush is calling for, according to projections in the new budget.

Lawmakers said they are unlikely to go along with much of the president's final-year agenda, and Bush's plan omits several costly features, including tens of billions of dollars of the cost of the wars in Iraq and Afghanistan, that could drive the deficit even higher than the president's estimates. That would effectively delay until 2009 decisions on how to cope with short- and long-term financial problems, lawmakers and others said.

The new deficit projections "clearly make a problem not only for the next Congress but also the next couple of Congresses, and the next president, too," said G. William Hoagland, a longtime GOP Senate aide and budget expert who is now a health-care lobbyist.

"A whole bunch of things they were putting off and hiding under the rug all these years are starting to pop back up," said Austan Goolsbee, an economist at the University of Chicago and chief economic adviser to Sen. Barack Obama (D-Ill.). "It's clear they're trying to shove as much of this as possible on to the next guy."

White House officials reject such criticism, saying they have tried to put forward ideas for confronting the long-term costs of Medicare and Social Security but repeatedly have been stymied by Democrats in Congress. White House budget director Jim Nussle told reporters yesterday that he remains hopeful there can be bipartisan progress on budget issues this year, noting that Democrats and Republicans have cooperated recently on the economic stimulus plan.

"You might be surprised," he said. "I think that there are many in Congress that believe rather than waiting until the last minute in 2008, maybe we ought to have some of those conversations a little bit earlier."

The budget deficit has not figured recently as a major issue in Washington or on the campaign trail, as it did in the 1980s and '90s. Bush inherited a surplus in 2001, but his tax cuts, the slowing economy early in his administration and a massive defense buildup turned the surplus into red ink, with the deficit hitting a record $413 billion in 2004. In recent years, the deficit has fallen as tax revenues jumped with the improving economy.

Nussle acknowledged that the deficit will grow to $410 billion in the current fiscal year. But he cast that largely as a result of the stimulus plan, which is expected to cost about $146 billion, and he noted that the deficit is low in historical terms, as a proportion of the economy.

"We believe that this uptick is temporary and is also a manageable budget deficit if we keep taxes low, if we can keep the economy growing and if we can keep spending in check," he said.

But while the deficit measured against the size of the economy will be far from a record, it will come after six straight years of red ink. The federal debt will have climbed to $9.7 trillion by the time Bush leaves office, a rise of $4 trillion during his administration, according to the budget.

Interest on the debt next year will total $260 billion, about what will be spent by the departments of Education, Energy, Health and Human Services, Homeland Security, Housing and Urban Development, Interior, and Justice combined.

Bush's budget, for the fiscal year that begins Oct. 1, is austere except for a handful of agencies including the Defense Department, which would grow by about 7 percent over the discretionary spending approved for the current year. The president would slice $14.2 billion from the growth of federal health-care programs in 2009, eliminate scores of programs and virtually freeze domestic programs.

The plan would continue Bush's first-term tax cuts beyond their 2011 expiration date -- at a cost to the Treasury of $635 billion through 2013 -- extend abstinence education programs, create elementary and secondary education vouchers, and guard other White House initiatives.

The president also takes aim at programs that Congress has zealously preserved -- and is likely to continue protecting. Among the programs Bush would eliminate are food programs for poor children, research assistance to manufacturers, career and technical education grants, weatherization assistance, community development grants, graduate medical education at children's hospitals and a public housing revitalization program that the House just overwhelmingly reauthorized.

The president's budget stands in sharp contrast to the priorities of the Democratic-controlled Congress, which lawmakers said is likely to wait out Bush's presidency rather than accede to many of his demands.

As in past years, the budget has several features that may make the deficits even larger than Bush anticipates.

For instance, it makes room for $61 billion in 2009 to stop the growth of the alternative minimum tax, a parallel tax system that was enacted in 1969 to make sure the rich pay income tax, but that is increasingly squeezing the middle class. The cost of a fix will continue to grow each year, but the budget makes no more allowances for that.

The document also assumes $70 billion in costs for the Iraq and Afghanistan wars next year, a fraction of the true costs, which could reach $200 billion in 2008. Beyond 2009, the budget includes no war costs at all.

Pentagon spokesman Geoff Morrell said last week that the $70 billion request was only enough to close out the Bush administration, making explicit the Defense Department's desire to let the next president finish the job of funding the war. "Three-quarters of that budget in '09 will be executed by a subsequent administration," he said.

To reach his deficit forecast, the president assumes economic growth this year of 2.7 percent, a full percentage point higher than the Congressional Budget Office estimate and much higher than the forecasts of some private economists, who believe the nation may already be in a recession. Adopting the CBO's forecast would eliminate about $340 billion in expected tax revenues, said Tom Kahn, staff director of the House Budget Committee.

Bush also foresees raising $2.1 billion in health-care fees on non-disabled veterans through 2013. A promised crackdown on tax cheats is supposed to raise $10.5 billion over that time. And under the budget, domestic programs not related to defense or homeland security would be frozen at $393 billion between 2010 and 2013.

"It's not going to happen," said Sen. Judd Gregg (N.H.), the ranking Republican on the Senate Budget Committee, who called Bush's budget more of "an academic exercise" than "a real budget."

"Maybe a $400 billion deficit forecast will get people to notice," Gregg added. "But in an election year, we haven't seen very much seriousness, and this budget certainly falls into this category."

Former Bush economic adviser Lawrence B. Lindsey, while applauding the short-term stimulus package as wise fiscal policy, said neither the White House nor Democrats are being particularly realistic about the longer-term fiscal challenges facing the country. He said the president is proposing a freeze on spending and Democrats are anticipating using revenue from expiring tax cuts.

"Neither of those probably will work out the way they expect," he said. "Let's face it -- the last thing Washington does is freeze spending for any sustainable period of time. And the fiscal and macroeconomic effects of letting the tax cuts expire are huge."

With little prospect for action, the fiscal problems will fall to the next president, and they could be considerable. "They are going to inherit a fiscal meltdown. It's just as clear as it can be," said Senate Budget Committee Chairman Kent Conrad (D-N.D.).

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