President Bush sent a $2.9 trillion spending plan to a Democratic-controlled Congress on Monday, proposing a big increase in military spending, including billions more to fight the war in Iraq, while squeezing the rest of government to meet his goal of eliminating the deficit in five years.
Bush's spending plan would make his first-term tax cuts permanent, at a cost of $1.6 trillion over 10 years. He is seeking $78 billion in savings in the government's big health care programs — Medicare and Medicaid — over the next five years.
Responding to the new political realities of a Democratic-controlled Congress, Bush proposes balancing the budget in five years, matching a goal put forward by Democratic leaders. But Bush would achieve that feat while protecting his cherished first-term tax cuts.
Release of the budget in four massive volumes kicks off months of debate in which Democrats, now in control of both the House and Senate for the first time in Bush's presidency, made clear that they have significantly different views on spending and taxes.
"The president's budget is filled with debt and deception, disconnected from reality and continues to move America in the wrong direction," said Senate Budget Committee Chairman Kent Conrad, D-N.D.
The arrival of the massive four-volume set of green budget books, which will cover the budget year that begins next Oct. 1, will be followed by months of debate in Congress. Democrats charged that Bush wants to make painful cuts across a wide swath of government programs while protecting tax cuts that will make the deficit worse after 2012.
“This budget is plunging us toward a cliff that will take us right into a chasm of debt,” Conrad said in an interview Sunday.
“In real terms, Bush’s plan is going to have very substantial cuts by the fifth year of this budget in all of the domestic priorities from education and health care to law enforcement and veterans,” Conrad said. “With Democrats in control, we will have different priorities.”
“It just gives you sticker shock. Every time you turn around it’s another $100 billion,” Conrad said of Bush’s war spending.
All-time federal deficit
The federal deficit hit an all-time high under Bush of $413 billion in 2004. It has been declining since that time and the 2008 budget projects it will continue to decline and show a surplus in 2012, three years after Bush leaves office.
To accomplish those reductions, Bush would allow only modest growth in the government programs outside of defense and homeland security. He is proposing eliminations or sharp reductions in 141 government programs, for a savings over five years of $12 billion, although Congress has rejected many of the same proposals over the past two years.
Bush also will seek to trim spending on farm subsidies by $18 billion over five years, mainly by reducing payments to wealthier farmers, an effort certain to spark resistance among farm state lawmakers.
Bush’s budget would achieve nearly $100 billion in savings over five years by trimming increases in Medicare, the health insurance program for 43 million retirees and disabled, and Medicaid which provides health care to the poor.
Trims proposed in Medicare spending
The restraints in Medicare spending would total $66 billion over five years while the savings in Medicaid would total $12.7 billion. Most of the Medicare savings would come in slowing the growth of payments to hospitals and other health care providers. But $11.5 billion in savings would come from boosting insurance premiums paid by the wealthiest Medicare recipients, those making more than $80,000 annually for individuals and $160,000 for married couples.
More people would be forced to pay the higher monthly premiums because the administration would stop indexing the income levels for inflation. Bush also wants to make high-income Medicare recipients pay more for their drug coverage as well as the higher premium they are now paying on the insurance for doctors’ visits.
These proposals are certain to generate stiff opposition in Congress, which refused to go along with smaller Medicare reductions Bush proposed last year. The administration argues that it is seeking to slow the average annual increases in Medicare over the next 10 years to 6.7 percent instead of current projections of 7.4 percent.
Hands across the aisle
The president appealed for Democratic support during an appearance at a House Democrats’ retreat on Saturday, saying the government must do something to restrain the soaring costs of costs of entitlement spending on health care and Social Security before the looming retirement of 78 million baby boomers.
“I’m under no illusions of how hard it’s going to be,” he told the Democrats. “The only thing I want to share with you is ... my desire to see if we can’t work together to get it done.”
Bush once listed overhauling Social Security as the No. 1 domestic priority of his second term. But his effort two years ago to accomplish the overhaul by diverting some Social Security taxes into private investment accounts went nowhere in Congress even with Republicans in control.
For the first time, Bush will spell out details of the spending requests for Iraq and Afghanistan in the budget books. Previously, he has lumped that spending into supplemental requests with less detail.
$100 billion sought for war
Bush has asked for an additional $100 billion for Iraq and the global war on terrorism this year, on top of $70 billion already sought. For 2008, that spending would drop to $145 billion and fall to $50 billion in 2009, although administration officials conceded that the 2008 and 2009 requests could go higher depending on the progress of the war effort.
White House budget director Rob Portman said Sunday that the spending includes the cost of increasing troop strength in Iraq by 21,500, an increase that opponents want Congress to go on record as opposing in upcoming nonbinding resolutions. The administration projects that the troop increase will cost $5.6 billion this year, a figure that critics say is too low.
“We believe the president’s plan will be successful,” Portman said on CNN. “We’re giving Congress exactly what Congress asked for on a bipartisan basis, more transparency as to our costs and more information.”
As in past years, the Pentagon is scheduled to get a hefty increase in spending authority of 11 percent, pushing its 2008 budget to $481.4 billion.
More health care to uninsured
Bush’s budget also includes an initiative to expand health care coverage to the uninsured through a complex proposal that would make health coverage supplied by employers taxable for the first time but give all families a $15,000 deduction in hopes it would encourage those who don’t get health care through their job to sign up for coverage. Democrats have been highly critical of the plan.
Critics contend that Bush is able to show declining deficits and a balance in 2012 by leaving out major expenses. Bush does project the costs of extending his 2001 and 2003 tax cuts, which the Congressional Budget Office estimates will cost $2.3 trillion over 10 years. He only includes a one-year fix for the alternative minimum tax, which was initially designed to make sure the wealthy paid their fair share of taxes but is ensnaring more middle class wage earners.
The CBO estimates that just for 2012, the year Bush’s budget goes into balance, providing AMT relief would cost $49 billion, an amount likely to be close to the surplus Bush projects for that year.