Record Deficit Forces Cuts in Bush Budget ["Yes, we are screwed..."]
Monday February 2, 8:09 pm ET
By Adam Entous and Caren Bohan
WASHINGTON (Reuters) - President Bush proposed a $2.4 trillion election-year budget on Monday that would boost defense spending, slash 128 programs and seek to cut this year's record deficit in half -- a goal even fellow Republicans were skeptical he could achieve.
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The White House acknowledged it would need up to $50 billion in extra money for military operations in Iraq and Afghanistan next year. This would be on top of the $400 billion military budget and would potentially shatter his deficit reduction aims.
After inheriting a surplus, Bush has overseen a dramatic worsening of the budget picture. He hopes to improve his fiscal image before the November election by laying out plans to reduce the record $521 billion deficit by a third next year and in half between 2007 and 2009.
To get there, he is asking Congress to terminate 65 major programs and reduce another 63, reserving the bulk of new federal spending for homeland security and defense while making his tax cuts permanent. Among those to be scrapped -- a $149 million public housing program and a $171 million Commerce Department advanced technology program for businesses.
The White House still expects the budget shortfall to total $1.35 trillion through 2009 and government debt to rise from $8.1 trillion to $10.5 trillion, prompting warnings from Democrats that chronic deficits would crowd out private investment, drive up interest rates and slow economic growth.
"We went through a recession, we were attacked and we're fighting a war. These are high hurdles for a budget and for a country to overcome and yet we've overcome them," Bush said of his budget, which would cut funding for about half of the 15 Cabinet-level agencies.
He said he was "confident" his deficit targets would be met, but Democrats and Republicans alike expressed doubts and said they were bracing for a bitter fight between the White House and Congress that could stretch through the campaign season.
Florida Republican Rep. Bill Young, the House of Representative's chief overseer of federal spending programs, said "austere" spending limits would not significantly reduce the deficit. "The numbers simply do not add up."
Rep. John Spratt of South Carolina, the ranking Democrat on the House Budget Committee, said it was "neither credible nor realistic."
DEFENSE, HOMELAND SECURITY PRIORITIES
In line with his campaign priorities, the budget's biggest winners will be homeland security with a nearly 10 percent rise and the military with nearly 7 percent.
Defense contractors including Boeing Co. (NYSE:BA - News) and Northrop Grumman Corp. (NYSE:NOC - News) stand to benefit as Bush's $401.7 billion military budget increases spending on missile defense and on modernizing the Army.
To placate conservatives threatening a revolt, growth of other discretionary spending would be capped at 0.5 percent. Because that is well below the inflation rate, it amounts to a cut in domestic programs and the lowest growth since 1993.
Among the hardest hit were agriculture, transportation, environmental and small business programs.
Housing advocacy groups warned that Bush's budget would reduce by 250,000 the number of families receiving aid.
Education would get an overall 3 percent boost -- not enough, Democrats say, to fulfill Bush's election-year pledge to improve school performance.
AIDS advocacy groups said he would cut assistance by almost two-thirds to the U.N.-backed Global Fund to Fight AIDS, tuberculosis and malaria.
Spending on U.S. international aid programs would rise to $19.34 billion from $17.28 billion, a rise that partly reflects more money for the U.S. Millennium Challenge Account that aims to funnel aid to nations that fight corruption, respect human rights and open up markets.
InterAction, an alliance of U.S. aid groups, said Bush was cutting funding from core aid activities to fund the Millennium Challenge and HIV/AIDS initiatives.
Bush has set the goal of bringing this year's record $521 billion shortfall down to $364 billion in fiscal 2005, to $241 billion in 2007 and then to $237 billion in 2009. There is no talk of surpluses in the foreseeable future.
While a record in dollar terms, a $521 billion shortfall would still be less than levels seen in the early 1980s when viewed as a percentage of the size of the U.S. economy.
In a preview of election-year battles, Democrats scoffed at Bush's plan to stem the red ink while asking Congress to make permanent his tax cuts and warned of painful cuts in popular programs from veterans' medical care to law enforcement.
"It's the most anti-family, anti-worker, anti-health care, anti-education budget in modern times, and it doesn't deserve to pass," said Sen. Edward Kennedy, a Massachusetts Democrat.
Fiscal conservatives accused the White House of relying on gimmicks, like stretching the definition of homeland security to sidestep its own spending limits, and want much deeper cuts.
"He's moving in the right direction but we need to go further," said Pennsylvania Republican Rep. Pat Toomey, the leader of one group of conservatives.
Bush also omitted money to reform Social Security -- a key plank of his re-election campaign.
Some business tax breaks favored by Republicans will also be reined in while the costly reform of the alternative minimum tax which hits middle income taxpayers is to be put off.
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