Bush Budget Stays Within Deficit Limits

President Bush on Monday proposed a $1.45-trillion federal budget for fiscal 1992 that seeks to live within the tight restrictions imposed by last fall’s deficit-reduction accord, despite the mounting costs of the recession and the Persian Gulf War.

The Bush package, which covers the fiscal year that begins next Oct. 1, calls for a federal deficit of $280.9 billion, down only slightly from the deficit for fiscal 1991, which is expected to hit a record $318.1 billion as a result of the recession.

The Administration’s new deficit forecast dwarfs the $25 billion that the White House originally forecast for fiscal 1992, and surpasses the previous record deficit of $225 billion set in fiscal 1986.

The first budget that the White House has proposed under the new deficit-cutting framework forged last fall, the new spending plan contains few new domestic or military initiatives that might break that agreement and reopen a budget fight with Congress.

However, the new spending and deficit figures do not account for either the mounting costs of the Gulf War or the government’s rescue of troubled banks and savings and loan institutions, either of which could bloat the deficit sharply.

The Administration expects the war to increase the deficit in 1992 by $15 billion, but officials conceded that figure could go up if the war is prolonged or if the allies fail to provide continuous financial assistance.

The White House said Monday that it will submit a supplemental budget request to Congress by late February that will provide updated war-cost estimates.

Reaction from Congress was muted this year, partly because both parties now recognize that budgetary choices are narrowing under the new budget accord.

Congressional leaders agreed Monday that the ballooning deficit and the budget-cutting accord have left little leeway for a renewed battle between the White House and Congress over the size of the budget.

Despite the war, overall defense spending, excluding the costs of Operation Desert Storm, would rise to $278.3 billion from last year’s $273 billion--actually down 3.3% after adjustment for inflation. But military spending will certainly soar over the coming year.

The fiscal 1992 spending plan, which now must go to Congress, calls for modest increases in funding in a few specialized areas, including the war on drugs, space exploration and highway construction.

It also proposes the transfer of roughly $15 billion in federal programs to the states as part of a new drive that Bush is launching to give states greater flexibility in how they administer federal funds.

But much of that new funding is geared toward small pilot programs and the Administration has not proposed any dramatic initiatives to stimulate the economy and fight the recession. Analysts say that the deficit could rise sharply if the recession continues for very long.

Overall, the budget calls for a 2.6% increase in federal spending--far below the expected rate of inflation of 4.3% for calendar year 1991.

Senior Administration officials noted Monday that the budget proposal is based on the assumption that the recession, which they say began either last August or September, will be relatively brief, with a slow recovery beginning in the second quarter of 1991.

As a result, they argue that the slump might be over before any anti-recessionary measures included in the budget would go into effect next fall.

Apart from a renewed effort by the Administration to seek a capital gains tax cut--a measure that was defeated by Congress last year--the new budget does not seek major changes in tax policy.

The White House again confirmed Monday that it does not believe it will be necessary to raise taxes to pay for the Persian Gulf War.

The budget also calls for cuts in Medicare and a range of other benefit programs, with politically explosive reductions proposed in subsidies aimed at middle- and upper-income Americans.

In addition to reductions in fees to physicians and hospitals, the Administration proposes to reduce Medicare benefits for wealthy Americans who earn more than $125,000 a year. It also hopes to limit benefits for the affluent in federal student loan programs, crop insurance and other farm subsidies.

The Medicare change would triple Part B premiums for individuals who earn more than $125,000 a year, or couples who earn more than $150,000 a year. About half a million people would be affected, officials said.

Under current law, those who choose to participate in that part of Medicare pay $32 a month regardless of their income.

Administration officials said that while these cuts in so-called “entitlement” programs remain controversial, they are necessary if the government expects to deal with the massive federal deficit.

“You cannot be serious about addressing the federal budgeting problem and fail to address (entitlement programs), 52% of the budget, the fastest growing piece,” Richard G. Darman, director of the Office of Management and Budget, told a press conference Monday.

So that it can live within the broad spending caps imposed in last fall’s accord and still increase funding for other programs, the White House hopes to save $46.6 billion over five years through cuts in such entitlement programs.

Under the terms imposed by that accord, any new spending must be offset by similar cuts elsewhere, which Administration officials say is perhaps the most important policy change from the framework provided by the old Gramm-Rudman deficit-reduction law.

Darman said Monday that he believes the new spending limits will change the nature of the budget debate in Washington, turning it into a “competition of ideas,” as Congress and the White House fight over which programs should receive increasingly scarce federal funding under the new budget caps.

The Bush budget, for example, calls for increased funding of 250 federal programs, decreased financing for 108 others and 238 that should be eliminated altogether.

The overall spending projected by the Administration budget does not include costs of the savings and loan bailout. The document estimates separately that $88.1 billion will be needed to cover the costs of that rescue effort, down from $111.5 billion in fiscal 1991.

Sen. Jim Sasser (D-Tenn.), chairman of the Senate Budget Committee, said that the new budget submitted by the Administration shows that Washington is “fiscally paralyzed, precisely when we may need to act.”

He praised the Administration for making a credible estimate of the size of the deficit and for providing a realistic economic forecast this year but he still warned that the nation is faced with budgetary gridlock.

He noted that the interest payments on the federal debt in fiscal 1992 will reach $200 billion, or roughly the same amount earmarked for all domestic programs outside of entitlements.

“With those debt constraints, we’re reduced to cannibalizing the budget, sacrificing one program to another, abandoning one needed investment so we can afford the next,” Sasser told reporters.

And Rep. Leon E. Panetta (D-Carmel Valley), chairman of the House Budget Committee, also cautioned that the nation’s debt burden is eroding any chance for Washington to begin new initiatives.

“Our $3-trillion total debt is 50% of gross national product (the economy’s total output), and if that doesn’t scare the hell out of people, I don’t know what will,” Panetta said.

Instead, congressional leaders predicted that the fight will be over which programs should survive. And almost immediately, Democratic leaders criticized the Bush plan to cut Medicare benefits.

“I think they (the Medicare cuts) are going to be very difficult to pass in the amount that the President is discussing,” cautioned House Speaker Thomas S. Foley (D-Wash.).

Foley and other leaders noted that the five-year budget framework hammered out last fall calls for some cuts in Medicare and any further reductions might threaten to reopen--and abort--that agreement.

“We’re revisiting a lot of battlefields where a lot of blood has been spilled,” Panetta said.

Nevertheless, Democratic leaders still faulted the Administration for failing to provide any new programs to fight the recession and argued that the White House budget is tilted in favor of the military over domestic programs.

“One million persons have been unemployed since last September and another 1 million will lose their jobs by midyear,” Panetta said. “There is nothing in this budget to help their plight.”

While congressional leaders seem unwilling to fight the White House over spending for the Gulf War, Panetta and others still believe that further cuts in other areas of the Pentagon budget will have to be made to finance the war without a tax increase.

Still, the budget does include funding increases for at least some domestic programs, including education, the war on drugs, transportation, the fight against AIDS and science and technology.

In education, for example, the budget proposes a $2.1-billion increase in funding for the Head Start program, $6.4 billion in compensatory education and $1.9 billion to improve math and science educational programs.

Bush also proposed $8.4 billion, or a 13% increase, in funding for scientific research and development over 1991. Much of the new funding is targeted at “big science” projects, such as the supercollider, a 50-mile long atom smasher to be built in Texas, and the Human Genome Project, an ambitious attempt to identify and map the estimated 100,000 genes in the human body. The Bush Administration wants to increase funding for the supercollider by 120% and the genome project by 26%.

The Administration also plans to raise spending for transportation by 6.3% to $33.55 billion, with the bulk of the money going to the Federal Highway Administration to help states pay for the construction, repair and maintenance of the nation’s interstate highway system.

Staff writers William J. Eaton, Edwin Chen, Marlene Cimons and Robert W. Stewart also contributed to this story.

Slicing Up the Federal Budget

BUDGET TIMETABLE:

Monday: President Bush submits to Congress his fiscal 1992 budget, which, projects a deficit of $281 billion.

April 15: Congress must adopt a formal budget resolution, showing what it plans to spend and what changes in tax laws it plans to make.

June 15: The Congressional Budget Office takes a “snapshot” of actual spending and tax receipts, projecting the likely deficit for the fiscal year. The number provides a basis for enforcing the accord.

Aug. 25: The Office of Management and Budget issues a report on the estimated fiscal 1992 deficit, based on spending and tax legislation enacted up to Aug. 15.

Oct. 1: Fiscal 1992 begins. If Congress still has not cut spending to the levels set in last autumn’s budget agreement, the President may slash outlays automatically.

15 days after the end of cogressional session: President issues an order if necessary requiring sweeping spending cuts needed to meet the deficit reduction target.

Source: U.S. Office of Management and Budget

THE FEDERAL DOLLAR: WHERE IT COMES FROM, WHERE IT GOES:

Where it comes from:

1991

Individual income taxes: 43%

Other: 4%

Excise taxes: 3%

Government borrowing: 5%

Corporate income taxes: 11%

Social security payroll tax: 34%

1992

Individual income taxes: 37%

Other: 4%

Excise taxes: 3%

Government borrowing: 19%

Corporate income taxes: 7%

Social security payroll tax: 30%

Where it goes:

1991

Benefits to individuals: 43%

Other federal operations: 6%

Grants to states, localities: 12%

Interest on borrowing, debt: 14%

National defense: 25%

Bank deposit insurance: 6%

1992

Benefits to individuals: 41%

Other federal operations: 7%

Grants to states, localities: 12%

Interest on borrowing, debt: 14%

National defense: 20%

Bank deposit insurance: 6%

Source: U.S. Office of Management and Budget

THE ECONOMY: WHERE IT’S HEADED

4th qurter 1990 to 4th quarter 1991

White House:

Economic growth: 5.3%

Inflation: 4.3%

Unemployment rate (average): 6.6%

Congress (CBO):

Economic growth: 5.5%

Inflation: 4.0%

Unemployment rate (average): 6.8%

Private Economists:

Economic growth: 4.9%

Inflation: 4.1%

Unemployment rate (average): 6.5%

Source: U.S. Office of Management and Budget