Bush budget for a changed world

New realities promise tough Hill fight: Deficits are back, debt reduction is out, Social Security isn't sacrosanct.

What a difference a war makes.

Last year, President Bush presented Americans with a peacetime, have-it-all budget. It promised a hefty tax cut while leaving Social Security untouched. It called for paying off part of the national debt. Even after all that, there would still be surpluses.

This year, the nation apparently can't have it all.

With the war on terrorism now the top priority, the administration's 2003 budget, released yesterday, reflects new realities: Social Security is no longer sacrosanct, debt reduction is a laudable but unrealistic goal, and deficits are back.

The reordered priorities promise a tendentious fight that will test the president's newfound political capital - and will set the tone for the 2002 midterm elections.

"We're unified in Washington on winning this war. One way to express our unity is for Congress to set the military budget, the defense of the United States as the number one priority and fully fund my request," said the president, wearing a bomber jacket before a cheering crowd at Eglin Air Force Base in Florida yesterday. "The budget I submit recognizes the vital role the military will play, and recognizes we have only one alternative and that is victory."

While Congress has already signaled support for Mr. Bush's proposed increase in military spending - the biggest in 20 years - and substantial sums for homeland defense, differences will be intense over other elements in the president's portfolio, notably tax cuts and entitlement spending.

Democrats, eager to retain control of Congress, will portray the White House as abdicating fiscal responsibility and endangering Social Security. They no doubt will step up their attacks of his 10-year, $1.35 trillion tax cut, passed last year, as the main reason for disappearing surpluses.

Both parties will have objections to elements of the president's proposed budget cuts, which target lawmakers' pet programs and affect everything from youth job training to highway improvement projects.

"I don't expect most of what the president is proposing [in budget cuts] to be accepted by Congress," says Stan Collender, a budget expert at Fleishman-Hillard Inc. In fact, he predicts "outright rejection on a bipartisan basis."

Yet, while the Bush plan reflects a major shift since Sept. 11, experts say the change is less astonishing when viewed historically.

Even with the administration proposing a 14.5 percent increase, for instance, defense spending still represents just 3.5 percent of the nation's gross domestic product. When President Reagan was fighting the cold war in the 1980s, his military budget accounted for as much as 6 percent of GDP.

Indeed, the administration points out that previous wartime presidents took much more extreme approaches to the budget than the Bush White House. In comparison to the 2003 budget, which calls for about a 2 percent increase in nonmilitary spending, Franklin Roosevelt and Harry Truman slashed their non-war spending by 20 percent and higher.

During the Vietnam War, defense dollars rose 57 percent and the nondefense budget nearly tripled, explained Office of Management and Budget director Mitch Daniels, in an opinion article.

But this kind of war doesn't require the massive deployments of troops and equipment needed to combat Hitler's army or fight in the jungles of Southeast Asia.

Not that $48 billion in new defense spending is chump change. The administration proposes that much of it go to support the kind of communications and intelligence methods, plus weapons technology, that proved helpful in Afghanistan.

Thus, the White House is proposing a 10 percent increase in weapons procurement, including pilotless drones and the development of unmanned aerial combat aircraft. It is budgeting the same amount for national missile defense - $7.8 billion - as this year.

It is the budget cuts, however, that could bring Congress and the White House to a standoff. Areas slated for cutbacks include $58 million slashed from the Department of Energy's fossil fuel research and development program; $9 billion cut from highway improvement; and a reduction in youth unemployment programs, which the administration deems ineffective.

Still, it is rewarding other programs, including Job Corps, which the administration says is more effective in helping the unemployed, as well as a food and nutrition program for poor children and infants.

Including a $90 billion stimulus package to help jump-start the economy, the administration is forecasting a deficit this year of $106 billion. For 2003 - the budget year which the president has just presented, and which begins in October - it forecasts a deficit of $80 billion.

Democrats and some budget experts are far more concerned about the out years. While the White House forecast a 10-year surplus of $5.6 trillion last year, this year it sees the 2011 surplus shrivelling to $665 billion. Mr. Collender says this greatly changes the outlook for Social Security and debt reduction.

"Are they proposing to cut Social Security or Medicare in terms of benefits and payouts to pay for defense? No. Are they dipping into the Social Security and Medicare Trust funds? Yes."

As to debt reduction, he replies, "What debt reduction?" explaining that "the biggest overall increase over the next 10 years will be interest on the debt."

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