President Bush yesterday unveiled a $1.45 trillion budget for the next fiscal year that includes an ambitious call to redirect federal spending but shifts few spending priorities and reflects the limits imposed by last year's budget agreement.
The administration proposal would result in a $280.9 billion deficit -- lower than this year's but still the second highest in the nation's history -- with the full costs of the Persian Gulf War and the bailout of the savings and loan industry still unknown. As it is, the government will be forced to borrow one in every five dollars it will spend in 1992.
Budget Director Richard G. Darman portrayed Bush's new budget as a "reformist" one that would begin to shift benefit payments away from the middle class and toward the poor; stress "investment in the future"; turn over control of many federally funded programs to the states; and comply with the spending limits set by last year's agreement, which was intended to set the deficit on a downward path.
But the 2,029-page, seven-pound budget document offered mostly minor modifications of current spending plans. "Though less grand than a New World Order, steps toward a new domestic order can continue to be advanced -- at least at the margin of practicable change," Darman wrote in an introduction.
The budget proposal for the fiscal year that begins Oct. 1 boosts total spending by a modest 2.6 percent, not enough to keep pace with the projected 4.3 percent inflation rate. Last fall's budget accord imposed strict limits for discretionary spending programs -- those subject to annual appropriations -- so if one area grows, another must be cut. The budget proposes increases over current spending for 250 federal programs, including housing, transportation and space exploration, at a total cost of $17.8 billion.
The administration proposes eliminating more than 238 other federal programs, ranging from new public housing construction to student financial aid programs, to save $4.6 billion. In addition, 109 programs, including urban mass transit and Amtrak subsidies, are targeted for reductions totaling $8.3 billion.
Many of the savings proposed by the administration have been rejected by Congress in the past. The budget also lists 11 federally funded programs that Bush has proposed turning over entirely to the states on the theory the states can be "laboratories" for innovation.
The Pentagon's spending request carries out the force reductions envisioned by last year's budget agreement, although Defense Secretary Richard B. Cheney said at a news conference yesterday that future cuts would be reassessed in light of developments in the Soviet Union.
Darman said the administration later this month will submit a supplemental spending request to cover at least part of the cost of the gulf war during the current fiscal year. But he said the administration had not yet decided on the amount of the request.
Darman said the $51 billion pledged by foreign governments to defray U.S. expenses in the war probably would be enough to cover most of the war's cost through the end of March, without further solicitations. But Darman said that if the war lasts longer than that the administration would seek "additional foreign contributions."
The budget includes a series of relatively minor tax changes that the administration has sought before, including a family savings plan, extended research and development tax credits, and early withdrawals from individual retirement accounts for first-time home buyers. "The underlying theme . . . is to leave the tax code as it is," said Treasury Secretary Nicholas F. Brady. "The basic theory here is: still pond, no more moving."
But the administration also reintroduced the politically charged proposal to cut taxes on capital gains. And the tax debate in Congress probably will revolve around an item not included in the budget: the call from members of both parties for a cut in the Social Security payroll tax.
On Capitol Hill, Democrats criticized the budget for some of its domestic priorities.
"We don't like the way the president did it," said Panetta. "He has emphasized the wrong priorities."
Advocacy groups found the budget long on promises, but short on delivery. "Given the rhetoric, there's less there than meets the eye," said Robert Greenstein, executive director of the Center on Budget and Policy Priorities, a Washington-based research group that focuses on poverty issues.
Many of the spending increases heralded in the Bush budget were modest at best. The budget document shows Head Start funding going up $100 million, for instance. But $86 million of that is needed just to keep pace with inflation, making the effective increase just 0.7 percent.
The administration highlights its $6.2 billion request for remedial education programs, but the increase falls $68 million short of the level needed to keep pace with inflation, according to Greenstein.
While Darman's introduction boasts of making "a major contribution to the expansion and improvement of the transportation infrastructure," the proposed increases for highways would not be enough to maintain the current level of spending taking inflation into account. At the same time, the administration wants to cut its share of funding for highway construction, putting more of the burden on the states.
The budget also assumes that $8.1 billion in new revenue will be generated over five years by a cut in the tax on capital gains. The question of whether a cut will raise or lose tax revenue is hotly debated, and the administration has proposed that Federal Reserve Chairman Alan Greenspan mediate the dispute.
The administration was more straightforward, however, in its forecast for the economy. By focusing on spending targets, the five-year budget agreement has apparently encouraged the administration to make a more honest assessment of the economy's prospects, eschewing the "rosy scenarios" that helped the administration hit past deficit targets without proposing painful spending cuts.
"It takes away the incentive that used to be there for the administration . . . to intentionally or unintentionally misestimate in the rosy direction," said Darman. "There is nothing to be gained from that under the new system."
In yesterday's budget, the Office of Management and Budget forecast that in 1992 unemployment would linger as high as 6.6 percent and interest rates (for 91-day Treasury bills) would be 6.0 percent, both considerably higher than the agency's earlier forecasts.
After being labeled by Democrats as protectors of the rich in last year's budget battle, the administration sought to seize the fairness issue by proposing to shift the emphasis of some federal benefit programs from the middle class to the poor.
The most significant attempt comes in Medicare, where for the first time the administration seeks to tie this politically sensitive program to beneficiaries' income. The administration wants to increase the premiums in the voluntary Part B program paid by individuals with incomes exceeding $125,000 a year and couples who make more than $150,000 annually.
The proposal would affect 500,000 elderly people and would bring in $91 million annually. But administrative costs would eat up $50 million a year, according to administration officials. A similar proposal was made by Sen. Phil Gramm (R-Tex.) during last year's budget summit but was rejected.
The administration also proposed eliminating farm payments to farmers who have a yearly non-farm income of more than $125,000. Farmers in that category, however, get only about $90 million a year from the $11 billion subsidy program, according to administration data.
In addition, Bush proposed targeting federal student grants to the neediest college students. Most of the $5.8 billion he sought for the program, a 7 percent increase over current spending, would go to students from families with annual incomes lower than $10,000. About 400,000 fewer higher-income students would receive grants.
In addition to the Medicare savings in last year's budget agreement, the administration is seeking $25.3 billion in savings over five years by paring back reimbursements to doctors, laboratories and hospitals.
The proposal was criticized yesterday by representatives of doctors, hospitals and the elderly. Horace Deets, executive director of the American Association of Retired Persons, said that "the administration's fiscal 1992 budget proposes little to control rising health costs but instead plays like a broken record: 'Cut Medicare, cut Medicare, cut Medicare.' "
Several measures included in the budget were billed as "empowerment" initiatives designed to increase individual choice in federal housing and education programs. One was a program advocated by Housing and Urban Development Secretary Jack Kemp to increase by more than 25 percent funding for programs that give residents of federally subsidized housing the ability to decide where they want to live.
The administration also proposed giving $200 million to school districts with voucher programs that allow parents to choose schools for their children and an additional $30 million to districts setting up models for parental choice programs. An additional $100 million was targeted for magnet schools, which specialize in specific subject areas.
Staff writers Kenneth J. Cooper, Kathleen Day, Sharon LaFraniere, John Lancaster, Ann Mariano and Spencer Rich contributed to this report.