Modest Bush Budget To Focus on Energy, Schools, Bank Reform

FOR months now, White House aides have been arguing that, after two years in office, President Bush has already accomplished most of his domestic agenda. When the president delivers his proposal for next year's budget to Congress next Monday, it will reflect those modest aspirations for further federal initiative.

In his State of the Union message to Congress Tuesday, the president emphasized the nation's high profile on the world stage, applauding the efforts of United States forces in the Persian Gulf war. He also expressed concern over the economic plight many Americans are facing at home in the current recession.

On the domestic front, the most ambitious element in the president's program is reform of the nation's troubled banking system - the most profound reform since the 1930s.

The National Energy Strategy, due out shortly after the budget, will call for greater conservation and wider use of alternative fuels, as well as more development of domestic oil resources. But it is not clear how ambitious the new energy policy will be.

Many of the other initiatives in the new budget are familiar from last year, sometimes with creative new twists.

The president has chosen to offer up once again a cut in the tax rate on capital gains. But rather than simply launching anew into bitter ideological war over the issue, he is proposing a study committee, headed by Federal Reserve Board chairman Alan Greenspan, to find a common ground on at least the more technical aspects of the proposal.

The administration has been promoting the concept of parental choice of schools for their children, with the funding following the choice, for two years. But the new budget includes money - reportedly $200 million - for states to establish model programs.

The White House also proposes giving states the money for $15 billion worth of programs - it won't say which ones - for the states to spend as they choose. The purpose is for states to decide which of the programs work and which should be cut.

The modest character of the Bush budget this year has several explanations. One is the Persian Gulf war, which is the consuming concern of the White House. The administration wants to husband domestic support for its policy in the Gulf.

Another factor that tames budget aspirations, of course, is the deficit. The deficit for the current year is projected by the Congressional Budget Office at an all-time high of more than $300 billion, higher than the gross national product in 1950.

This figure does not count the cost of the Persian Gulf war (about $50 billion in the first quarter of this fiscal year) or the bailout of savings-and-loan insurance (more than $100 billion this year), and it is cushioned by the surpluses taken in by the Social Security Trust Fund (about $55 billion this year).

Still another factor working against bold budget moves is the fresh memory of the bitter partisan battle over a five-year budget deal completed this fall. ``This is not going to be a year for bold action on the budget,'' says Susan Herring, federal budget analyst at Salomon Brothers brokerage in New York. ``Congress is sick of it,'' she explains, and probably will not even work as hard as usual to fray the edges of spending limits in the budget deal.

The House has made an effort to shift the balance of budget power toward Capitol Hill. Its first action in the current session was to give its budget office, rather than the White House Office of Management and Budget, power to estimate program costs.

But the main drivers of the growing deficit are beyond the reach of the agreement, notes Allen Schick, budget expert at the Urban Institute, factors such as the economy and inflation.

Banking reform has become an emergency action. The Bank Insurance Fund is lower in funds than any time since the Great Depression, and the director of the Congressional Budget Office warned Congress Tuesday that the fund would run dry next fall without a large cash infusion. The administration proposes that the industry itself - not taxpayers - shore up the fund, and that bank holding companies be allowed into new lines of business.