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Democrats pledge to restrain spending

Determined to banish their old tax-and-spend image, Democrats want to shrink the federal deficit, preserve tax cuts for the middle class and challenge the president to raise money for the Iraq war when they take control of Congress next week. But it won't be easy.
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Determined to banish their old tax-and-spend image, Democrats want to shrink the federal deficit, preserve tax cuts for the middle class and challenge the president to raise money for the Iraq war when they take control of Congress next week. But it won't be easy.

The incoming Democratic chairmen of the House and Senate Budget committees said they plan to honor a campaign promise to devote billions of additional dollars a year to homeland security and education. And they reiterated a commitment not to cut off funding for U.S. troops in Iraq and Afghanistan.

But with the costs of those military operations rising and President Bush considering an expansion of forces, the incoming chairmen, Rep. John M. Spratt Jr. (S.C.) and Sen. Kent Conrad (N.D.), said they will have little room in their budget blueprints for significant new domestic spending, such as closing a much-criticized gap in the new Medicare prescription-drug benefit that forces millions of seniors to pay 100 percent of drug costs for a few weeks or months each year.

They said they will press Bush to help finance a war that is costing the nation as much as $8 billion a month.

"Raising taxes would certainly be an option," Conrad said in an interview. "The president, this is his policy. He's got an obligation to pay for it."

The two chairmen said they would seek to save money by demanding a better accounting of military spending and an end to "the ever-expanding 'shadow budget' of supplemental and bridge funds," as they put it in a letter to the White House last week that was also signed by outgoing Senate Budget Committee chairman Judd Gregg (R-N.H.). Those budget mechanisms have funneled more than $500 billion to terror-related operations since Sept. 11, 2001, with little scrutiny from the Republican lawmakers who are leaving power. Spratt said he would spend most of January in oversight hearings to determine where the money is going.

"When the president talks about staying the course, he never mentions cost as a factor," Spratt said. "But it is a factor, particularly when you get costs over $100 billion a year."

Budget balanced by 2012?
Spratt and Conrad said they would aim to balance the budget by 2012, a goal that could anger liberal Democrats eager for new spending on domestic programs and conservative Republicans determined to preserve the tax cuts passed during Bush's first term. But it also could establish the Democrats as able stewards of the nation's treasury, political analysts said, giving the party's presidential candidates an important accomplishment for the 2008 campaign.

"In terms of practical politics, the reality is this: We have to be on good behavior so we have a chance to win the presidency," said Rep. Jim Cooper (D-Tenn.), a leader of the Blue Dog Coalition, a group of conservative House Democrats whose ranks swelled to 44 in the November elections. "We have a chance now of having a new Democratic Party that supports the middle class and has middle-class priorities at heart."

Republicans and budget experts say they doubt Democrats can simultaneously cut the deficit and meet their spending goals, especially given GOP opposition to higher taxes. Bush's top budget advisers said last week that they see no need to increase taxes to pay for military operations in Iraq and Afghanistan, which are expected to cost $170 billion this year, up from $120 billion in fiscal 2006.

Despite the rising expense of the war, the annual budget deficit declined to $248 billion in the fiscal year ended in September because of an unexpected surge in tax collections.

"Revenues are up because of a growing economy," said White House budget director Rob Portman. "That has enabled us not just to afford the relatively high [war] supplementals -- higher than we expected -- but actually to decline the deficit."

Democrats say the annual deficit is kept artificially low with cash borrowed from the Social Security trust fund. The nation's overall indebtedness is approaching $9 trillion, and interest on that debt grew by 23 percent last year, making it the fastest-growing part of the budget.

Less than 20 percent of the budget is available for education, highways, housing and courts, discretionary programs that are being further squeezed by an increasingly expensive military. In the session that just ended, Congress failed to pass budget bills for most domestic agencies, in part because lawmakers refused to support painful spending restraints.

Plans to plug most difficult holes
Two weeks ago, Democrats announced plans to plug some of the most difficult holes in the current fiscal year by stripping funds for lawmakers' pet projects, known as earmarks, from the bills. For next year, Spratt and Conrad said they plan to keep the purse strings pulled tight on discretionary programs and apply a pay-as-you-go rule to changes in tax policy and mandatory programs such as Social Security and health care.

That will force Democrats to find spending cuts or new revenue to pay for some big-ticket items: They have promised to halve interest rates for federal student loans, which would cost as much as $60 billion over five years. They want more money for border and port security, first responders and the National Guard. They say health programs for children and veterans need more cash to avoid dropping thousands of people from their rolls. And they want to extend some of the Bush tax cuts that are set to expire in 2010, including an expanded child credit, a reduction in the so-called marriage penalty and the new 10 percent tax bracket.

Plus, Democrats have promised to freeze the alternative minimum tax, a parallel tax structure that will add thousands of dollars to the tax bills of millions of families unless Congress comes up with about $50 billion to halt its expansion for another year.

Democrats say they will cover that cost by ending tax breaks on foreign profits of U.S. businesses, closing corporate tax shelters, cutting subsidies to oil and gas companies and giving the federal government authority to negotiate lower drug prices for Medicare. They would also tap the vast amount of uncollected tax revenue known as the tax gap, which has been projected at $300 billion a year.

But some of those funding sources are highly uncertain. The nonpartisan Congressional Budget Office has said negotiating drug prices is unlikely to produce much savings. Past attempts to harness the tax gap have produced little new revenue.

One or the other
Without more money, Democrats will face "a real struggle for which wins out: the political promises or the fiscal-responsibility promise," said Robert L. Bixby, executive director of the Concord Coalition, a nonpartisan group that opposes deficits. "If the public perceives that they're making real choices and cutting back on some things they want to do politically because they're trying to be fiscally responsible, then they can declare victory." But if people perceive that they're honoring fiscal restraint in word but not in deed, then they'll look pretty silly, Bixby said.

So far, Bixby said, he has been impressed by Democratic leaders' commitment to deficit reduction, calling the elimination of earmarks "rather stunning." Another Blue Dog leader, Rep. Dennis Cardoza (D-Calif.), said the Democrats' conservative wing will block any effort in the House to backslide on those promises.

"Yes, there's going to be tough medicine," Cardoza said. "But we are incredibly united behind these goals. And they need us to do anything."