Bush slashes domestic programs

By Caren Bohan and Andrea Hopkins

WASHINGTON (Reuters) – President Bush proposed on Monday to
boost defense spending, slow Medicare’s growth and cut a host
of domestic programs in a $2.77 trillion budget that sought to
soothe Republican frustrations over high deficits.

With congressional elections looming in November, the
fiscal 2007 blueprint came under swift attack from Democrats,
who said the elderly and working Americans would bear the brunt
of Bush’s fiscal mismanagement.

The plan would cut discretionary programs outside national
security by 0.5 percent. Bush wants to pare back or scrap 141
programs, with education, cancer research and community
policing programs slated to take a hit.

But Bush proposed a record $439.3 billion defense budget,
up 4.8 percent from last year. On top of that, the White House
will seek new financing for wars in Iraq and Afghanistan.

The president renewed his call for the Republican-led
Congress to make his tax cuts permanent even as he projected a
surge in the federal deficit to $423 billion this year, up more
than $100 billion from fiscal 2005.

Bush said failing to extend his tax cuts would amount to a
tax increase.

But congressional Democrats said his plan masked the depth
of fiscal problems by ignoring the long-term impact of the 2001
and 2003 tax cuts, which they said would cost $1.5 trillion in
2012-2016 if they are fully renewed.

“The tax cuts explode after five years,” said Sen. Kent
Conrad of North Dakota, senior Democrat on the Senate Budget
Committee.

Senate Democratic leader Harry Reid of Nevada called the
budget document “immoral and irresponsible.”

“After creating record deficits and debt with his budget
busting tax breaks, the president is asking our seniors, our
students, and our families to clean up his fiscal mess with
painful cuts in health care and student aid,” Reid said.

Democrats hope to overturn Republican dominance in both
chambers of Congress in November elections and see the deficits
as an issue on which Bush and his allies are vulnerable.

Lawmakers will debate the budget this spring and the
eventual product could look very different from Bush’s plan.

The White House penciled in $50 billion for war spending in
2007 but budget director Joshua Bolten said that was simply
based on Congress’s initial allowance for 2006 and was not a
firm assessment of the needs.

“It’s very hard to say what we’ll be spending 18 months
from now in Iraq,” Bolten said. “It has been a very expensive
undertaking.”

A new infusion this year of $70 billion in emergency funds
for the wars in Iraq and Afghanistan dwarfs the proposed
domestic program cuts in fiscal 2007 and is double the
five-year savings of $36 billion in Medicare.

Total war spending for 2006 is $120 billion — the budget’s
single biggest discretionary item. The $70 billion in emergency
funds is in addition to $50 billion already approved by
Congress.

ELECTION-YEAR WORRIES

Even though fiscal conservatives are upset about the
deficits, lawmakers are usually squeamish about cutting
programs in an election year, making the Bush’s wish list a
tough sell.

Nine of the 15 Cabinet agencies would see cuts, with
education down 3.8 percent, justice reduced by 7.2 percent and
transportation 9.4 percent lower. Veterans Affairs was given an
8 percent increase, one of the few domestic programs to get a
bigger budget.

Bush would hold the growth in discretionary spending to 3.2
percent, below the 3.4 percent inflation rate.

He also hopes to squeeze $65 billion in savings over five
years from mandatory programs, including $36 billion for the
Medicare health program for the elderly. Growth in hospital
payments would be reduced and the administration would set
triggers to cut Medicare if spending surpasses certain
thresholds.

As an indication of the battles the administration will
face over its budget, the AARP, the influential seniors lobby,
vowed to fight the Medicare triggers.

The administration emphasized it was not cutting Medicare
but slowing its annual growth to 7.5 percent from 7.8 percent.

Spending for the Iraq war and Hurricane Katrina have
contributed to an expected rise in the 2007 deficit to $423
billion from $318 billion in 2006. But Bush still maintains he
can halve the shortfall by 2009.

A handful of domestic programs would get fresh cash. Those
include research and development, math and science education,
high-tech training and alternative fuel sources.

Although the domestic program cuts spurred criticism,
Conrad predicted Congress would embrace Bush’s full request for
defense.

“We’re at war,” Conrad said. “The Congress of the United
States is going to stand shoulder to shoulder with the
president” to provide funds for soldiers.

(Additional reporting by Joanne Kenen and Rick Cowan)