Defense, Tax Cuts Lead Bush Agenda

President Bush on Monday sent Congress a proposed $2.77-trillion budget for 2007 that would boost Defense and Homeland Security while trimming the growth of Medicare and other social service programs.

Joshua B. Bolten, Bush’s budget director, said the budget’s two paramount goals were 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.”

Bolten estimated that Bush’s policies would leave a deficit of $354 billion next year -- the fourth-largest ever in dollar terms -- which would settle down to around $200 billion for the subsequent four years. But other analysts foresaw deficits breaking through $400 billion next year and growing from there, propelled by the likely costs of the Iraq war and the scaling back of the alternative minimum tax, which was originally aimed at the wealthiest taxpayers but is affecting more of the middle class.

Some conservatives hailed the budget as an exercise in fiscal discipline with a commitment to tax cuts. “I’m giving it a standing ovation,” said Rep. Jeb Hensarling (R-Texas).

But other conservatives said Bush’s budget-cutting did not go far enough. “The restraint on spending in this budget simply isn’t sufficient,” said Rep. Jeff Flake (R-Ariz.).

Liberals decried the proposed budget’s continued pressure on domestic programs for the poor. “Although it contains the same themes as earlier administration budgets, it is somewhat harsher,” said Robert Greenstein, head of the Center on Budget and Policy Priorities.

Departments that would gain the most under Bush’s budget include the Pentagon, which would see spending rise 7%, and the Department of Homeland Security, where a 6% increase would go largely to immigration enforcement, air travel security and the Federal Emergency Management Agency.

Overall, federal spending would rise by $61 billion to $2.77 trillion, which would make it the smallest annual spending increase of the Bush administration. Altogether, spending has grown by 38% during the five years Bush has been in office -- and by 20% even after adjusting for inflation.

The spending figure for next year omits all but $50 billion of the cost of prosecuting the wars in Iraq and Afghanistan. The administration has asked for $120 billion for the troops this year.

On the revenue side of the budget, Bush proposed $28 billion worth of tax cuts -- a relatively small sum for him. Most would come from exempting most middle-income taxpayers from the alternative minimum tax, which was enacted in 1969 to prevent the wealthy from sheltering most of their income from the Internal Revenue Service.

The spending restraint would come mostly in two forms: Bush would terminate or sharply scale back 141 relatively small domestic programs, which the administration said it would list later this week. Bolten said 65 of them had been proposed for the chopping block last year, only to survive the congressional appropriations process.

Greenstein said the list of terminated programs include those that provide food to the elderly and to pregnant women and infants, while those slated for deep cuts help pay for child care, housing for low-income elderly, and former President Clinton’s program to put more police officers on city streets.

Bush would also save money by trimming the growth of the government’s giant benefit programs, particularly Medicare. Of the $65 billion that he would save over five years, $36 billion would come from the health program for the elderly and the disabled.

The government would trim the degree to which the Medicare program reimburses hospitals and other institutions for providing care. And it would gradually increase the share of Medicare recipients who have incomes high enough to require them to pay extra premiums to cover of their doctor’s visits.

Bush’s budget amounts to a challenge to Congress and to his party to continue efforts to curb federal spending, but one that could put Republican lawmakers in a bind. The plan would have them adopt cuts in popular programs, but they would have little to show for it in the form of reduced deficits.

The spending cuts may be hard to navigate through Congress in an election year.

“Making difficult votes, hard votes, in an election year sometimes calls for a little more courage,” said Senate Budget Committee Chairman Judd Gregg (R-N.H.), who said he had already told his colleagues at a GOP policy retreat that he wanted to push for another round of budget-cutting.

“I gave them fair warning,” Gregg said.

By late last year, it had become increasingly difficult for Republicans to squeeze spending cuts out of Congress. Faced with a recalcitrant and unified Democratic opposition, Republican leaders had to get all the votes for controversial budget bills from their side of the aisle. Last year’s budget bill to trim Medicaid, student loans and other entitlement programs passed without a single Democratic vote: the tallies were 50-50 in the Senate, with Vice President Dick Cheney breaking the tie, and 216-214 in the House.

Here are some of the highlights of Bush’s proposal:

Defense

Pentagon spending would rise to $439.3 billion, or 7% more than lawmakers gave it last year. That does not include funds for military operations in Iraq and Afghanistan -- not even the $50 billion that the administration has included in the total budget request.

As the military shifts focus away from fighting large armies toward fighting “irregular warfare,” such as counterinsurgencies, the Pentagon is increasing spending on unmanned drone aircraft and efforts to counter homemade bombs in Iraq and Afghanistan.

At the same time, the Pentagon has decided to cut none of its big-ticket weapons systems, some of which were envisioned during the Cold War and designed to fight a much different enemy than the one U.S. troops are now facing.

The 2007 budget requests $1.7 billion more than last year for unmanned drones. The Pentagon hopes to purchase 322 new unmanned aircraft by 2011.

The Pentagon also hopes to better prepare U.S. troops for counterterrorism and counterinsurgency missions, proposing an additional $1 billion this year to train and equip 4,000 new special operations troops. By 2011, the Pentagon plans to have trained 14,000 new special ops troops, bringing the total to 64,000.

The proposed budget includes $84.2 billion in total spending on weapons systems, including $3.4 billion to build two high-tech Navy DD(X) destroyers and $3.7 billion for the Army’s Future Combat System, a collection of vehicles, computers, sensors and robots that is the Army’s top spending priority.

Homeland Security

The Department of Homeland Security would see a 6% raise over 2006, mostly for border and aviation security, but also for the maligned Federal Emergency Management Agency and a temporary guest-worker program.

For Californians, the budget would provide $30 million to complete the fences and patrol roads that make up the San Diego Border Infrastructure System.

For border-state residents, the budget would add 1,500 Border Patrol agents, more surveillance technology and 6,700 detention bed spaces for non-Mexicans caught trying to cross the border. Air travelers would be charged $5 for each trip, no matter how many legs, rather than the current $2.50 per leg, to help cover the cost of airline security.

Foreign Aid

Spending on foreign aid would rise 14%, to $23.7 billion.

Officials said significant increases were proposed in three areas: A $919-million boost in global HIV spending, to $2.8 billion; $709 million more in general aid to Iraq, to $771 billion; and $1.2 billion more for the Millennium Challenge Account, a program that provides grants to countries that undertake democratic and market reforms that the administration considers desirable. The increase would raise funding for the program to $3 billion in 2007.

The largest cuts would come from eastern Europe and former Soviet countries that have been receiving assistance aimed at helping them make the transition to new forms of government. Officials said the administration was shifting more of its focus to the distressed regions of the Middle East and Asia.

Education

Bush proposed to cut 3.8% from the Education Department and eliminate 42 programs, including a dropout-prevention program and the safe and drug-free school programs.

The budget would create a $100-million program of vouchers that could be used to pay tuition at private schools. Congress has rejected such proposals in the past. The budget also includes a plan to enlarge the No Child Left Behind program by requiring two years of testing in high school.

Pell grants for college students would be frozen at a maximum $4,050 a year, although Education Secretary Margaret Spellings said they would be made available to nearly 60,000 additional students. More than 5 million full- and part-time students qualified for the program this year.

Justice

The Justice Department request of $20.8 billion includes $100 million to help fund a troubled FBI computer upgrade. The ultimate cost is expected to be much higher. The bureau last spring scrapped an earlier project to computerize its case-management system, and it parted ways with its long-term contractor on the program.

Environment

The administration proposed to cut nearly 5% from the Environmental Protection Agency, bringing its spending to $7.3 billion. The agency seeks a $55-million increase for such domestic security programs as protecting drinking water from terrorism.

Spending on grants to reduce diesel pollution would grow from $7 million to $50 million by cutting funds to states and Indian tribes to help them meet other clean-air regulations, said Heather Taylor of the Natural Resources Defense Council.

Social Security

Last year, when Bush made it his top domestic priority to allow workers to divert some of their Social Security taxes to personal retirement accounts that they could invest in stocks or bonds, he never stated how much it would cost to fund such accounts and simultaneously pay promised benefits to current retirees.

The 2007 budget repeats the proposal and includes cost estimates. The accounts would phase in beginning in 2010 at a cost of $24 billion, $57 billion the next year and $712 billion from 2010 to 2016.

Times staff writers Nicole Gaouette, Johanna Neuman, Paul Richter, Mark Mazzetti, Matthew O’Rourke, James Gerstenzang and Richard B. Schmitt contributed to this report.