Budget tight, deficit high

Bush's $2.5 trillion plan would cut 150 programs. Other costs grow.

President Bush's just-released $2.57 trillion 2006 budget is noteworthy for what it includes and for what it leaves out.

Mr. Bush's budget plan seeks deep cuts in a wide array of government programs, from farm subsidies to education programs. Yet it does not list projected costs of military operations in Iraq and Afghanistan, which will easily top $80 billion this year. Nor does it reflect the price of introducing private investment accounts within Social Security, the administration's top domestic legislative priority.

The bottom line: a tight projected budget, plus the possibility of big undetailed costs arising later in the year, mean that the massive federal deficit may now affect US politics more than it did in Bush's first term. "There's less money to go around and so people fight much more fiercely over the remaining dollars," says Robert Bixby, executive director of the Concord Coalition, a fiscal watchdog group.

The 2006 spending blueprint submitted by Bush to Congress on Monday is easily the toughest of his presidency. It would eliminate or drastically cut some 150 government programs, according to administration officials.

Farm supports would be reduced by $5.7 billion over the next decade, for instance. Medicaid, the giant federal program that funds healthcare for the poor, would be cut. Federal subsidies for Amtrak would end. Even Start, a $225 million Education Department literacy program, would face the ax.

Outside defense, homeland security, interest costs, and Social Security and other big entitlement programs, US spending would be reduced by about one-half of one percent, in real terms.

Pentagon spending, meanwhile, would increase 4.8 percent in 2006 under the Bush proposal, even without taking into account the costs of current military operations.

Military personnel would receive a 3.1 percent pay raise. But the Air Force's high-priority F/A-22 fighter would be halted in 2008 after 179 aircraft - 96 short of the number the Defense Department asked for. The Navy would get only one new submarine and three surface ships, instead of the six vessels the administration had previously outlined for the 2006 budget.

The politics of spending cuts

There is a long process to wend through before Bush's blueprint becomes law, however. Many of the programs targeted for reduction by administration officials have legislative supporters. Many now slated for elimination will likely be revived.

Take last year as an example: In its 2005 fiscal year budget, the administration targeted 65 programs for elimination or reduction. Of those, 60 received a new lease on life.

Instead of a projected $5 billion in savings, the administration reaped only about $300 million from the cuts. And in any case, slashing the deficit by reducing nondefense, nonentitlement spending is generally a losing game, say some analysts. There is just not enough money to be had.

Discretionary spending "is a tiny fraction of the budget. You could eliminate the whole thing ... and you would barely cover the size of [Bush's] tax cuts," said William Gale, a Brookings Institution budget analyst, at a seminar on the Bush agenda last week.

For this and other reasons, wrangling over red ink seems sure to be a feature of legislative life this year. After all, the nation's deficit will hit $427 billion in fiscal year 2005, after the administration's expected $80 billion supplemental request for military operations spending is added on. In dollar terms, that's a record - though as a percentage of the nation's economy it is still smaller than the explosive deficits of the Reagan years.

Bush has vowed to cut the deficit in half by 2009, and his new budget would do that, if the measure used is the deficit's percentage of GDP, say administration officials.

The 2005 deficit will be about 3.5 percent of GDP. Under the just-released plan, the 2009 deficit would be 1.5 percent of GDP, well below the 40-year historical average of 2.3 percent.

Critics contend that the Bush plan is carefully crafted to hit the five-year promise, however, and that the deficit would resume increasing sharply in 2010.

The president's two biggest domestic fiscal proposals - making his tax cuts permanent, and introducing private accounts within Social Security, would both kick in after 2009, noted Mr. Gale. Thus promising to halve the deficit prior to then "is like saying you're going to go on a diet until dinner," he said.

Overall, perhaps the most noteworthy aspect of the current state of politics over fiscal issues is that the traditional GOP position of fiscal responsibility appears to have been abandoned, claims Stan Collender, general manager of the Washington office of Financial Dynamics Business Communications.

Absolute numbers are less important than the trend, writes Mr. Collender in a recent National Journal column - the federal bottom line has deteriorated every year for the past four years.

The fact that the administration points out that deficits were much larger as a percentage of the economy under Ronald Reagan is telling, claims Collender. That's using the budget failure of one Republican to make that of another seem smaller.

"Republicans have become the political party of both big deficits and deficit increases," he writes.

What the White House says

Administration officials, for their part, retort that outside events, such as the terrorist attacks of Sept. 11, 2001, have played a large role in recent deficit creation. An economy that was less robust than predicted in the early years of Bush's term in office did not help.

Furthermore, Bush has only a limited ability to change the situation, given the tightness with which Congress holds the nation's purse strings.

Some influential conservatives, such as Grover Norquist of Americans for Tax Reform, readily admit their disinterest in deficits, saying keeping taxes low is more important.

The 10-year cost of making Bush's tax cuts permanent would be $1.29 trillion, according to the just-released budget.

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