President Unveils $1.23-Trillion Spending Plan : Budget: Less funds for military, more for space and environment. Also includes no general tax increase.

President Bush today sent Congress a $1.23-trillion budget for next year that slows the growth in military spending in response to “dramatic changes in the world” and calls for no general tax increase as part of a plan to cut the federal deficit by half.

Bush proposed hefty spending increases for the 1991 fiscal year in space exploration, cleaning up the environment and the Head Start preschool program. He also recommended cuts in Medicare, college student loans and farm subsidies, among other domestic programs.

Bush’s budget--the first one he has written from scratch--was certain to provoke sharp debate in the Democratic-controlled Congress.

“With an eye toward future growth, and expansion of the human frontier, the budget’s chief emphasis is on investment in the future,” Bush said in a written message that introduced the 1,569-page budget.

“At the same time, the budget maintains a strong national defense while reflecting the dramatic changes in the world political situation that are taking place,” Bush said.

His plan calls for $303.3 billion for defense, a cut of 2% after inflation is taken into account. The budget proposal reflects the reduced tension in Eastern Europe produced by political changes there.

The budget renews the President’s call for a tax cut for capital gains, which critics say would benefit the wealthy, and introduces a new Family Savings Account aimed at middle-class taxpayers who could squirrel away up to $5,000 a year and earn interest tax free.

The President’s outline proposes cutting the federal deficit to $63.1 billion in the 1991 budget year, and if the target is met, it would be the lowest federal deficit in more than a decade. The President estimated this year’s red ink at $123.8 billion, far above the Gramm-Rudman deficit reduction target of $100 billion.

The Administration’s plan promises to balance the budget by 1993, as called for in the Gramm-Rudman law. But to do that it relies heavily on forecasts for economic growth and interest rates that many economists believe are overly optimistic.

Bush forecasts that the overall economy will grow by 2.6% this year when measured from the fourth quarter of 1989, an assumption that most private analysts believe is too optimistic by nearly 1 percentage point.

The budget document concedes that for every 1 percentage point shortfall in growth, the budget deficit will be increased by $18 billion.

One of the biggest gains would come in spending commitments for space exploration, scheduled to jump 24%, with extra money during the next several years for an orbiting space station and for a down payment on manned trips to the moon and Mars.

Bush also proposed a hefty increase in the war on drugs, boosting total spending in 1991 to $9.7 billion, and $500 million more for Head Start, the preschool program for poor children, putting total spending at $1.9 billion.

The various cuts in domestic programs totaled $13.9 billion in savings, with $5.5 billion of that coming from trims in doctor and hospitals payments in the giant Medicare health-care program.