Finally, a budget ax appears

It's crunch time in Washington. Both liberals and conservatives are worried that some of their pet programs will be cut. Their fears are well-founded. Next Monday, the president is expected to propose real spending reductions in the first budget of his second term.

That's probably significant.

Up to now, the administration has let deficits mushroom. President Bush did not veto any appropriations bills in his first term. Last week, the White House estimated that this year's red ink would reach a record $427 billion.

But deficits and the costs of war - plus Mr. Bush's promise to halve the deficit, as a proportion of gross domestic product, in five years - are forcing change. So the beneficiaries of federal largesse - civil servants, lobbyists, even some military contractors - are edgy.

"I'm hearing a lot of anecdotal material that there will be an unprecedented squeeze on federal spending," says George Krumbhaar, senior editor of USBudget.com, a commercial service that monitors budget developments.

The five-year goal is a "very convenient" time span, says Steve Ellis, vice president of Taxpayers for Common Sense, a budget watchdog. It means that as long as some progress in trimming the deficit can be reported by Year 4, Bush can claim he leaves office with the deficit "fairly close" to his goal - even if in reality his successor will be left to deal with a sea of red ink.

A possible scenario for the fiscal budget starting in October: a mere 1 percent hike in federal spending outside defense and most of homeland security. That would be tough - a real decline after inflation. "It would be historic for this White House," says Stephen Slivinski, director of budget studies at the Cato Institute in Washington.

Spending on defense in the past three fiscal years rose 47 percent, and on nondefense areas 33 percent, for a combined 40 percent growth. "We have had guns and butter up to now," Mr. Slivinski says.

Progressive and liberal groups worry that programs for poor and lower middle-income families will bear the brunt of the cuts, while the well-to-do keep extra dollars as a Republican-led Congress makes the Bush tax cuts permanent. Families depending on programs that subsidize housing, heating bills, medical care, public transport, and so on will "take it on the chin," says Perry Lange, an official with People for the American Way, a progressive advocacy group in Washington.

Already the Department of Housing and Urban Development has indicated a 4 percent cut in housing-assistance payments for this fiscal year, complains the National Low Income Housing Coalition. So either poor families will have to pay more for housing - or fewer will get help.

A big concern is that the new budget will change the current voucher system for housing aid to a system of grants that Washington can more easily cap. This could slash spending, says Katie Fisher, a spokeswoman for the coalition. She wonders if the 2006 budget, in its projection for five years into the future, will halve the Community Development Block Grant Programs that enable housing authorities to provide inexpensive housing.

But business is worried, too. Some aspects of what's called "corporate welfare" may face the chopping block.

For instance, the Advanced Technology Program, subsidizing research and development projects, and the Manufacturing Extension Partnership, encouraging firms to adapt "best business practices," may be trimmed, says Slivinski. The National Association of Manufacturers is busy defending the programs.

The defense industry got a scare last month when a Defense Department press briefer indicated that the Pentagon was poised to make $60 billion in cuts over six years. Among the hardest hit, it was reported, could be purchases of new big-ticket weapons systems.

But that briefing was "the ultimate budget sleight of hand," says Stan Collender, a veteran budget analyst with Financial Dynamics Business Communications. First, the $60 billion amounts to $10 billion a year, compared with nearly $5 billion a month the Pentagon spends on Iraq and Afghanistan alone. Second, Bush has just asked for an $80 billion supplemental - $35 billion to be used in those two nations in this fiscal year, leaving $45 billion for next fiscal year. "They are not cutting defense," he says.

Further, Congress is reluctant to shrink or end weapons systems, he says. Big defense projects usually take years to complete or change. So any cut in actual outlays is likely to be small while Bush is in the White House.

Other budget areas are probably at risk, too. Possible losers could include the Army Corps of Engineers, farm programs, Pell Grants, and veterans' health programs. But with only about a third of federal spending to work with - if defense, homeland security, interest on the debt, and mandatory entitlements are off the cutting table - reaching budget balance in five years is "not plausible," says Mr. Ellis. He figures Uncle Sam will need tax hikes - or trims in the Bush tax cuts - to really tackle the $400 billion-plus deficit.

Bush hopes a bustling economy will make tax revenues soar. It's a gamble.

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