Extend tax cuts and rein in spending, Bush says

WASHINGTON — President Bush on Monday sent Congress a proposed budget for next year that would extend his most prized accomplishment — his first-term tax cuts — while keeping tight reins on the growth of federal spending and trimming the growth of Medicare and other safety-net programs.

The combination means Bush almost surely will leave a huge deficit to his successor in three years, just as the first wave of baby-boom retirements puts tremendous pressure on government retirement and health-insurance programs.

Bush's priorities in the nearly $2.8 trillion budget are reflected in a proposed Defense Department budget 7 percent higher than this year's — $439 billion, without counting the additional costs of wars in Iraq and Afghanistan. That is 48 percent more than the yearly defense spending that Bush inherited in 2001.

At the same time, Bush is calling on Congress to restrain the spiraling cost of Medicare and other entitlement programs that absorb an increasing share of the national budget, proposing $36 billion in cuts in Medicare's growth over the next five years, largely by limiting payments to doctors and hospitals.

Joshua Bolten, Bush's budget director, said the budget's two paramount goals are to "fight and win the global war on terror" and "maintain our economic strength by extending the tax relief that has fueled our economic expansion."

Reflecting election-year politics, Republican leaders are reacting cautiously to the president's plans, while Democratic leaders assailed them.

The president has "laid the groundwork for a renewed look at our spending priorities," House Speaker Dennis Hastert, R-Ill., said Monday, pledging that the House "will keep a sharp eye on controlling spending throughout the budget process."

Senate Democratic Leader Harry Reid had another view.

"When it comes to protecting those who need it most, America has always had a moral compass," said Reid, D-Nev. "For the past six years, President Bush has read it upside down. After driving the nation into a fiscal mess, the president is asking our seniors, our students and our families to clean it up while the wealthy special interests reap the rewards."

Bolten estimated that Bush's policies would leave a deficit of $354 billion next year, which would settle down to about $200 billion for the next four years. Other analysts showed deficits breaking through $400 billion next year and growing inexorably from there. (The nonpartisan Congressional Budget Office forecast a $337 billion deficit for this fiscal year.)

Spending would rise by $61 billion to $2.77 trillion, which would make it the smallest annual spending increase of the Bush administration. It is an increase of 2.3 percent from projected spending of $2.71 trillion this year. Altogether, spending has grown 37 percent during Bush's first five years — 20 percent when adjusted for inflation.

The president's spending plan, which relies largely on growing tax revenue from an expanding economy, also counts on Congress to preserve the tax cuts that he won in 2001 and 2003. Most of Bush's tax cuts expire in 2010. Extending them would cost $120 billion in 2011 and $1.2 trillion from 2012-16.

The administration maintains these tax cuts have made the economy stronger. Critics say they have contributed to the record budget deficit.

Bush also is relying heavily on the expanding economy to make good his promise of cutting the deficit in half by the time he leaves office in 2009.

Overall, the president is calling on Congress to cut nearly $15 billion in spending next year by eliminating or scaling back 141 programs. The targeted cuts range from public-housing construction to federal spending on community policing and firefighting. They include cuts in federal aid for water cleanup and elimination of a nutritional program for the elderly, though Bush wants to transfer elderly households affected by that cut to the food-stamps program.

Sen. Arlen Specter, R-Pa., said proposals for education and health spending were "scandalous."

In calling for tough fiscal medicine 10 months before midterm elections, Bush is betting that voters will accept painful measures in the name of controlling the overall growth of government.

That calculation aligns Bush with conservative lawmakers, especially in the House, who believe an offensive against federal spending is critical to generating a large turnout from the Republican base in November's election.

"I think the American people are more concerned about overspending than anything else," said Rep. Paul Ryan, R-Wis.

But Bush's push to reduce spending may create problems for centrist Republicans in Congress.

In states such as Minnesota, Montana, Missouri and Pennsylvania, Democratic Senate candidates are charging that Bush and the GOP Congress are hurting programs that benefit middle-class families while attempting to preserve tax cuts for the affluent.

Sen. Olympia Snowe, a Republican who is up for re-election, complained, "For my state of Maine, some of these proposed cuts to Medicare ... would dramatically affect people's access to care."

Besides proposing to slow the growth in Medicare spending by nearly $36 billion over the next five years, Bush's budget also includes proposals that would raise Medicare premiums faster for certain seniors and impose automatic spending cuts on the program if its costs grow too large.

Already, candidates in House and Senate races are sparring about the 2006 budget that finally passed Congress Wednesday without a single Democratic vote — a plan that reduces spending for student college loans and Medicaid, the program that benefits low-income people and the disabled.

Democrats complain that after inheriting three consecutive years of federal surpluses, Bush produced deficits totaling $1.5 trillion in the past four years.

While Democrats primarily blame Bush's tax cuts for the fiscal reversal, Bush has proposed to dig out of the hole solely through spending reductions — a decision that's created the sharp conflict between the parties.