Bush budget a tough row

The coming debate over the 2007 budget may be the most difficult fiscal discussion President Bush has yet faced.

Mr. Bush's proposed $2.77 trillion spending plan, released Monday, contains some controversial provisions - notably, a $35.9 billion reduction in Medicare spending over five years.

But it's an election year, and GOP leaders are worried about maintaining control of Congress. Rank-and-file Republicans may have little enthusiasm for tough budget cuts, while Democrats will almost certainly oppose them.

The bottom line: The final 2007 budget may look much different from Bush's just-released blueprint.

"In an election year, when the president's popularity is waning, I can't see Republicans walking the plank for him," says Stan Collender, director of Financial Dynamics and a federal budget expert.

President Bush's 2007 proposed budget would spend about $2.7 trillion. By comparison, when Ronald Reagan assumed office in 1980, federal outlays were about $1.2 trillion, after inflation is taken into account.

The Department of Defense would get a 6.9 percent increase, under the Bush plan. This would pay for a big boost in the Army's budget, from $99 billion to $112 billion, and a 15 percent increase in the size of US special forces, among other things.

The Department of Homeland Security would get a 9.8 percent increase, under the plan. This would triple Federal Emergency Management Agency grants to help state and local authorities deal with damage from natural disasters, and add 1,500 new agents to patrol US borders.

International programs would also be big winners, if the president gets his way. Bush wants $4 billion to combat global AIDS in fiscal 2007, for instance, up from $3.4 billion in 2006.

Given the current state of the world, these increases are likely to prove uncontroversial, noted budget experts.

But many other aspects of US government would be squeezed to help make room for security funding increases.

Overall, the administration would cut $14.5 billion in discretionary spending, eliminating or scaling back 141 government programs.

Last year, a similar effort won about two-fifths of the program eliminations requested, resulting in savings of about $6.5 billion.

In the area of nondiscretionary spending, or programs for which eligibility is set by law, Bush is seeking a trim in the growth of spending on Medicare, the government's giant healthcare program. Medicare payments to hospitals would be one of the main targets of this effort.

In other mandatory spending trims, Bush is seeking a $5 billion reduction in farm commodity programs, and $16.7 billion in reforms of the Pension Benefit Guaranty Corp.

On taxes, the fiscal package released Monday would reduce government revenues by about $1.7 trillion over the next 10 years. Of this, $1.4 trillion would come from making permanent tax cuts passed earlier in Bush's presidency.

These changes, combined with predicted supplemental spending for the war in Iraq and hurricane relief, would set the deficit soaring to an all time high of $423 billion in 2007, under Bush's blueprint.

But overall the budget plan shows a declining deficit over the next five years, allowing Bush to keep his pledge of reducing red ink by half by 2009.

Following many past chief executives, Bush requests Congress to give him a line-item veto to aid in deficit reduction efforts.

Such a veto would allow the White House to eliminate only portions of appropriations bills that it does not like. Today, the president has to veto the entire legislation to block Congressional spending.

"All savings from the line-item veto would be used for deficit reduction," promises a White House fact sheet.

The fiscal 2007 budget year is a particularly significant one for a number of reasons, according to the Concord Coalition, a group which supports fiscal restraint.

It's the first year that the five-year window of budget planning must account for baby boomers turning 65 and qualifying for Social Security and Medicare. It is the first year that the budget must total the cost of extending Bush's tax breaks past 2010. And, as previously noted, it's an election year - and a competitive election year, at that.

"These factors make it all the more important to scrutinize the budget for fiscal sense," says a Concord Coalition analysis.

A promise to cut the deficit in half is a poor substitute for a promise to eliminate it entirely, according to this fiscal watchdog group. And it notes that previous Bush budgets have assumed significant savings that have not come to pass.

When it comes to the deficit, "optimistic projections are hard to turn into reality," notes the Concord Coalition.

The proposed Medicare cuts in particular may face a bleak future, note other experts. And the election season will cut into the time allowed for fiscal debate.

"I predict a lot will get done in a lame-duck session after the election," says Mr. Collender of Fiscal Dynamics.