Bush Suggests Putting Defense Cuts in ‘Pockets of Taxpayers’

President Bush said today he was considering a plan to make further cuts in the nation’s defense budget in order to put the savings “into the pockets of the American taxpayers.”

Such a move would mark a major shift in policy for the White House because it would force a renegotiation of the 1990 budget agreement, which requires that any savings be used to cut the budget deficit.

But as he comes under increasing political pressure to come up with a package to rekindle economic growth, Bush suggested for the first time that any peace dividend ought to be used “to stimulate the economy.”

The unexpected signal of a willingness to revise the budget pact is likely to set off a bidding war with Congress, where Democrats have already urged that defense savings be used to help fund a range of new domestic programs.

But Bush, while insisting that he had not yet made a final decision, made clear that he would resist any effort to use the defense cuts to increase domestic spending.

“I will simply reiterate my determination not to do anything that is going to reverse the economy and make it worse,” Bush said at a joint news conference with Singaporean Prime Minister Goh Chok Tang.

As his advisers put the finishing touches on an economic growth package, however, he left little doubt that he regarded as increasingly attractive a tax cut funded by defense cuts.

Asked whether he was ready to change the budget agreement to permit him to use savings from defense for other purposes, Bush replied: “Frankly, I’d like to put it into the pockets of the American taxpayer, if I possibly could, because I think that’s what’s needed.”

A senior Administration official traveling with Bush said it was now “likely” that savings in defense would be used to pay for the middle-class tax cut the White House has said it is considering.

Bush is expected to unveil his economic plan in his State of the Union address on Jan. 28.

It remains unclear how much money could be freed up by such reductions in defense spending. But there have been unconfirmed reports in Washington that the Pentagon has been asked to outline $50 billion in additional defense cuts over the next five years.

Meanwhile, Senate Democrats in Washington on Friday unveiled a wide economic plan that would combine a middle-class tax cut with a longer-term “Marshall Plan for America” that would redirect defense spending to domestic needs such as bridges, roads.

The plan also calls, in the short term, for additional unemployment insurance benefits as well as grants and loans to state and local governments designed to create jobs in education, transportation and public safety.