Bush Budget Plan Focuses on Tax Cuts and Defense

President Bush on Monday proposed a $2.57-trillion budget for 2006 that continues to shift government priorities from domestic programs to national security and tax cuts.

Reflecting the military and domestic security programs that took on new importance after the Sept. 11 attacks, the president’s budget would give big increases to the Department of Defense -- which is fighting wars in Iraq and Afghanistan -- as well as to the Department of Homeland Security and the FBI.

At the same time, Bush would slow the growth of Medicaid and food stamps, two favorite Democratic programs. But he also would attack some Republican constituencies by cutting farm subsidies and medical and disability services to veterans.

The budget would require air travelers to pay an additional $3 fee on each segment of a flight, on top of the current $2.50 federal fee, for anti-terrorism protections.

It also proposes to extend Bush’s first-term tax cuts, which are due to phase out over time.

The budget anticipates a deficit of $390 billion for 2006, down from this year’s expected record level of $427 billion. The 2006 figure does not include war spending in Iraq and Afghanistan; this year, the administration has sought $105 billion for those efforts.

The spending plan includes a range of restraints that would fall most heavily on education, environmental protection, farm subsidies and housing, although a few domestic programs would come out ahead.

Maximum Pell Grants to needy college students, for example, would be boosted by $100 per student, per year. At the same time, a loan program for college students would be scaled back, and federal spending on vocational education in high schools would be eliminated.

At nearly $2.6 trillion, the spending plan for the fiscal year beginning Oct. 1 would be the largest ever.

In his budget message to Congress, Bush repeated his pledge to cut the deficit in half by 2009. Bush anticipates a deficit in 2009 of $233 billion, down only 43% from the 2004 deficit of $412 billion.

The president is measuring his progress by a different yardstick: His budget plan anticipates the 2009 deficit will equal 1.5% of the nation’s gross domestic product, one-third of the 4.5% his administration estimated for 2004.

But the 2006 budget plan omits some major items that could confound that projection.

It contains no funds for the war in Iraq or for private Social Security investment accounts, Bush’s top foreign and domestic initiatives. And it includes no relief from the alternative minimum tax, a wrinkle in the tax code that both Congress and the president want to fix, but which would cost about $50 billion to eliminate in 2009 alone.

The 2006 budget plan does include the cost of extending Bush’s tax cuts for dividends, capital gains and business expenses. But the proposed extensions encountered immediate opposition among Republican senators, some of whom said the huge expense of private Social Security accounts left no room for tax cuts, which would cost $30 billion in 2009.

Congressional Republicans generally welcomed Bush’s call for spending restraint. Senate Budget Committee Chairman Judd Gregg (R-N.H.) praised Bush’s budget as an “appropriate response” to the country’s fiscal condition.

He acknowledged that the program cuts would not be popular on Capitol Hill. “The fact that everyone is going to be upset by it because everyone’s ox gets gored ... is probably a good thing,” Gregg said.

Not all Republicans were so enthusiastic, signaling that some of the cuts would be a hard sell. House Agriculture Committee Chairman Bob Goodlatte (R-Va.), a key player in the coming debate on farm payments, characterized Bush’s proposals as “a starting point.” In a statement, Goodlatte said Bush’s proposals “will be thoroughly considered by members of the committee.... There is much more work that needs to be done.”

Senate Appropriations Committee Chairman Thad Cochran, a Republican from the agricultural state of Mississippi, defended farm subsidies against the administration’s proposal to scale them back.

Democrats also protested Bush’s budget choices. Rep. John M. Spratt Jr. of South Carolina, the ranking Democrat on the House Budget Committee, said the spending cuts were dwarfed by the president’s tax cuts and “barely make a dent in the deficit.”

“They’re real, and they hurt. Yet for all of the hurt, these accounts hardly move the deficit at all,” Spratt said.

Joshua Bolten, director of the White House Office of Management and Budget, dismissed as “political theater” suggestions that Bush’s spending cuts would die a quick death in Congress.

The cuts that Bush proposed fall mostly in the one-sixth of the budget that is made up of domestic programs whose spending levels are set in annual appropriations bills. Bush proposed cutting these programs by about 1% overall, marking the first attempt by a president since the Reagan administration not just to cap but to cut non-defense discretionary spending.

The Defense budget, by contrast, would grow by almost 5% to $419 billion, bringing its overall growth since Bush became president in 2001 to 41%. Homeland Security would grow by nearly 7% in 2006, and the State Department would enjoy a nearly 16% boost.

For a president who is an avowed opponent of big government, Bush would lead government employment in a surprising direction. Civilian employment in the executive branch would reach the equivalent of 1,877,000 workers -- up 6,000 from this year and 140,000 since 2001.

The Department of Homeland Security, which hired many of the formerly private airport security screeners, is responsible for about half the increase.

Democrats said Bush’s budget was skewed by his omission of three big-ticket items.

They include funding for the wars in Iraq and Afghanistan, as well as the cost of providing relief from the alternative minimum tax. That tax, which was designed to ensure the wealthy do not shelter most of their income from taxes, has caught ordinary taxpayers as their incomes have risen with inflation.

Bush also did not include any of the money for his proposal to allow workers to divert some of their Social Security taxes into private investment accounts. That money would be needed to foot the bill for benefits that would otherwise be paid for by tax revenue.

The private account proposal has run into almost unanimous opposition from congressional Democrats.

Where Bush projected the deficit in 2009 to be $233 billion, Democrats said these three items would push it to $415 billion, too big to meet his goal of cutting the deficit in half.

The administration also said Monday that it would slash or eliminate 150 domestic programs. They ranged in size from Medicaid -- where the president proposed saving $60 billion over 10 years by scaling back eligible populations and coverable expenses -- to education for migrant workers, a $2-million program that Bush would eliminate.

Last year, Bush sent Congress a smaller hit list of 65 programs. According to the House Appropriations Committee, Congress ultimately killed four of them.

This year, the White House did not provide a list of the 150 programs.

“The point of the presentation today is to step back and take a look at the whole budget,” Bolten said. “If you have particular interests, you can go through and find where your interests are.”

Health

The biggest hit would be delivered to Medicaid, the joint federal-state healthcare program for the poor and disabled. Bush’s proposal for $60 billion in cuts, however, would be partly offset by $15 billion in new spending on care for elderly and disabled people at home instead of in nursing homes.

Health and Human Services Secretary Michael Leavitt said most of the immediate savings would come from overhauling the system under which the federal government pays the states its 50%-plus share of the program’s $300-billion annual cost. States are inflating their overhead to qualify for more federal dollars, Leavitt charged.

But advocates for the poor and several key lawmakers cautioned that Medicaid cuts could leave tens of thousands of people without health insurance.

Separately, the administration is proposing a series of new tax breaks to help uninsured Americans obtain health insurance.

Reacting to the recent drug safety debacle at the Food and Drug Administration, Bush proposed an increase of about 20% for the office that watches for potentially deadly side effects in medications already approved by the agency for use by patients.

Last year, popular pain medications were found to place some patients at increased risk of having heart attacks and strokes, and some antidepressants were shown to trigger suicidal thoughts in teenagers.

Education

As it did last year, the Education Department has the most program eliminations -- 45 on this year’s list. Grants to the poorest students would increase, but loans to more middle-income students would be cut.

The president’s education budget proposal allocated nearly $1.5 billion next year to extend the student achievement requirements of the No Child Left Behind Act to high schools.

Bush also requested an increase in so-called Title I Grants to school districts serving large numbers of children from low-income families. According to the Department of Education, the $13.3 billion in funding for these grants would mark a 52% increase.

Agriculture

The administration is proposing to cut $587 million in farm subsidies for fiscal 2006. It also is proposing a firm cap of $250,000 on the maximum payment per farmer, down from the current level of $360,000.

Tom Buis, vice president for government relations for the National Farmers Union, said that the administration was “pulling the plug” on price supports and counter-cyclical payments to farmers just as commodity prices were dropping and farmers were facing increased costs from higher fuel prices and other variables.

“This is going to face a rocky road in this Congress,” he said.

But the president’s proposals received some support from senators who said the move would protect small farmers.

The administration also is proposing to change the way states define eligibility for food stamps, a move that an Agriculture Department official said would cut $57 million from the $32-billion food stamp program for fiscal 2006. Dottie Rosenbaum, an analyst with the Center on Budget and Policy Priorities, said that in fiscal 2007, the administration’s changes would cut nearly $100 million from the food stamp budget and would trim 200,000 to 300,000 people from the rolls.

Veterans

The Department of Veterans Affairs would require higher-income veterans to pay $15 toward most monthly supplies of prescription drugs, up from the current $7. These veterans also would be required to pay a new, annual enrollment fee of $250 to use the system’s medical services, department officials said.

Rita A. Reed, deputy assistant secretary for budget, projected that 213,000 veterans would drop out of the VA system because of the enrollment fee, which was expected to raise about $452 million annually.

Law Enforcement

At the FBI, the proposed 11% spending increase reflects the agency’s top two priorities: combating terrorism and foreign espionage.

The Drug Enforcement Administration would see a 4% increase, to $1.7 billion, with a focus on disrupting three dozen major drug organizations.

By contrast, the Community Oriented Policing Services program, or COPS, which provides grants for state and local agencies to hire police officers, would be reduced from $499 million to $22 million. This program was a favorite of President Clinton’s.

Homeland Security

The Homeland Security Department emerged as one of the few winners in the budget, increasing by almost 7%.

But airline officials said the increased fee on air travelers would deliver another painful blow to an industry still reeling financially from the fallout of the Sept. 11 attacks. “A tax on travelers is a tax on airlines,” said James C. May, president and chief executive of the Air Transport Assn.

The Environment

The proposed budget includes cuts in programs dear to environmentalists. Of greatest concern is a proposed 5.6% cut in the budget of the Environmental Protection Agency, mostly in the area of clean water programs for state and local governments.

In addition, the National Park Service budget would be cut from $2.3 billion to $2.24 billion, though administration officials said these cuts would be in programs affecting state and local parks, not national parks. And the subsidy for the Amtrak rail system was eliminated.

The Energy Department’s overall budget request was cut by 2%. Energy efficiency and renewable energy programs faced a nearly 4% drop, while environmental management and cleanup programs would receive a 7.8% cut, congressional staffers said.

Sen. James M. Jeffords, an independent from Vermont who is the ranking minority member of the Senate Environment and Public Works Committee, accused the administration of “attempting to balance the budget on the back of the environment,” the working poor and veterans.

At the White House, James T. Connaughton, chairman of the White House Council on Environmental Quality, said some of the perceived cuts reflected progress toward cleanups. The Energy Department, he said, cut cleanup spending at Rocky Flats, a former military base in Colorado that had been contaminated with radioactive material, because of progress there.

Times staff writers Mary Curtius, Ricardo Alonso-Zaldivar, Tom Hamburger, Elise Castelli, Sara Clarke, Justin Dickerson, Warren Vieth, Edwin Chen and Greg Miller contributed to this report.

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Gains and losses

Percent change in spending in President Bush’s 2006 proposed budget, compared to 2005 budget:

Winners

State Dept.: +15.6%

FBI: +11.0%

Homeland Security: +6.8%

Defense: +4.8%

Drug Enforcement Administration: +4.0%

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Losers

HUD: -11.5%

Agriculture: -9.6%

EPA: -5.6%

Labor: -4.4%

Energy: -2.0%

Transportation: -1.0%

Source: Associated Press

Rebecca Perry Los Angeles Times