Bush Plan Calls for Tax, Spending Cuts

President Bush sent Congress a federal budget framework on Wednesday that would curtail and even reverse the growth of many domestic programs while plowing savings into tax relief and debt reduction.

Over a 10-year period, Bush pledged to slash the national debt by $2 trillion, set aside funds to protect Medicare, cut taxes by $1.6 trillion and establish a new reserve fund for unexpected needs.

At the same time, he would leave $1 trillion in outstanding debt, a decision that is likely to spark controversy.

Bush’s 2002 budget, with outlays just short of $2 trillion, would decrease spending on a broad range of agencies, including the Labor and Commerce departments. It would allow for growth in defense, education and medical research.

Bush argued that his approach was “compassionate,” “responsible” and “reasonable.” The plan, he said, presumes “a federal government that is both active to promote opportunity and limited to preserve freedom.”

But it was quickly assailed on Capitol Hill and even by some nonpartisan budget analysts, who said it lacked important details and played down budget realities that could lead to more spending than the White House predicts--leading to harsh trade-offs between tax relief and domestic spending.

“This has focused attention on what the president wants to do, not what he has to do,” said Stanley E. Collender, managing director of the federal budget practice at Fleishman Hillard, a public relations firm. “He’s not saying you have to eat your broccoli to get your dessert. He’s just saying you get the dessert first.”

Some also took issue with White House forecasts of a $5.6-trillion surplus arising from continued economic growth and an ongoing stream of healthy revenue--an upbeat view of the future that they said was meant to pave the way for a big tax cut.

“The president is gambling our healthy economy, the future of Medicare and Social Security and our children’s education on budget predictions that are no more reliable than a weather forecast,” argued Rep. Richard A. Gephardt of Missouri, the House Democratic leader. “ . . . His numbers simply do not add up. We weren’t handed a budget today, we were handed a tax cut.”

But House Budget Committee Chairman Jim Nussle (R-Iowa) complimented the spending plan as “a responsible budget that funds the priorities of the American people, plans for the future and keeps the economy growing.”

Overall, Bush would allow 4% growth in spending, about $26 billion in all, for the government’s “discretionary” accounts--those that require annual appropriations from Congress. Most of it would go to defense ($14.2 billion), education ($4.6 billion) and health care ($2.8 billion).

Many other domestic activities would be curtailed. The departments of Agriculture, Commerce, Energy, Interior, Justice, Labor and Transportation, the Environmental Protection Agency, Federal Emergency Management Agency and Army Corps of Engineers would all be in line for cuts.

The Transportation Department budget would drop from $20.5 billion this year to $18.4 billion in 2002 and the Agriculture Department budget would slip from $21 billion to $19.4 billion.

The actual programs to be cut were largely unspecified. The new administration plans to send its detailed budget to Congress in April. But some of the details were already apparent.

The Justice Department would lose about $1 billion out of its $20.9-billion budget, much of it in special grants approved by the prior administration but not affecting its core activities. The Commerce Department’s $5.1-billion budget would be reduced by $400 million, with high-tech research programs favored by the Clinton administration seen as candidates for cutbacks.

Bush also proposed $2.8 billion in savings by trimming federal subsidies for flood insurance and $1.2 billion by increasing bank examination fees. Funding would be reduced for the U.S. Export-Import Bank and the Overseas Private Investment Corp., which provides political risk insurance and loans for U.S. firms in emerging markets.

White House aides stoutly defended the budget as careful and responsible.

But critics rejected that proposition, arguing that the White House had conveniently left out likely expenses related to defense, agriculture, Medicare and other areas, which would make it harder for Bush to win support for his proposed $1.6-trillion-plus tax cut.

Bush, for example, proposed creating a new Medicare benefit for prescription drug purchases.

He has said he favors providing drug coverage through a version of legislation offered by Sens. Bill Frist (R-Tenn.) and John B. Breaux (D-La.), which would make it more likely that the elderly would have to join managed health care plans in order to get coverage.

He would pay for it with some of the $153 billion he has suggested for “modernizing” Medicare.

But Congress has shown no interest in a drug benefit that would cover only some of the nation’s elderly. And even a limited prescription drug benefit suggested by former Vice President Al Gore to include all seniors was estimated to cost more than $330 billion.

Bush’s budget is “a political document to help sell the tax cut rather than a serious document that lays out what you have to do to pay for the tax cut,” said Robert Greenstein, executive director of the Center for Budget and Policy Priorities, a Washington think tank that supports much of the government’s safety net of social programs.

Senate Budget Committee Chairman Pete V. Domenici (R-N.M.) conceded that as of now the president’s budget would not pass the Senate, and that Bush’s lobbying would be crucial. Domenici said he was “very disappointed” that after all the talk of bipartisanship, the debate seemed to be growing polarized, with Democrats relying on a message he described as: “Senior citizens: Get scared.”

Administration officials pushed for one expenditure they had not included in their budget--modifying the tax proposal to make it retroactive to Jan. 1. That would add an estimated $20 billion to $30 billion to the cost of the tax cut.

“It seems to the president and the rest of us that we should speed this money on the way back to the people who sent it in,” Treasury Secretary Paul H. O’Neill told the Senate Finance Committee.

Democrats complained that House GOP leaders were trying to ram the tax proposal through Congress, scheduling an immediate vote in the Ways and Means Committee. “Something with such consequence should not be delivered in such haste,” said Rep. John M. Spratt Jr. (D-S.C.), senior Democrat on the House Budget Committee.

House Speaker J. Dennis Hastert (R-Ill.) predicted Bush’s across-the-board tax cuts would clear the Ways and Means panel this week and be debated by the full House next week.

Under the Bush plan, the relatively few winners among discretionary spending programs would include elementary and secondary education. He included $5 billion over five years to help children read by the third grade.

Bush would maintain the National Institutes of Health on a course that would double its budget over the five-year period ending in 2003.

He also would offer a refundable tax credit to help low-income families buy health insurance. The amount of the tax credit was unclear, but several government officials estimated it would cost about $100 billion over 10 years.

Health insurance advocates expressed disappointment that Bush had decided against spending new money directly on helping to provide health insurance to the uninsured through existing programs.

“The good news is that there is some money in the budget to expand coverage. The bad news is that it’s fairly small and it’s an approach that has been discredited by every analyst from the left to the right as being ineffective in expanding coverage for the uninsured,” said Ron Pollack, president of Families USA, a consumer group.

On defense, Bush would boost spending by $14 billion over its 2001 level to $310 billion, or about what the Clinton administration had proposed for the 2002 fiscal year.

Defense hawks had hoped for far larger increases, but administration officials have said they won’t decide what the proper increase is until later this year, when they complete a broad review of military needs.

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Times staff writers Ricardo Alonso-Zaldivar, Janet Hook, Doyle McManus, Paul Richter and Alissa J. Rubin contributed to this story.

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Spending a Tax Dollar

How the government will spend a typical dollar under President Bush’s 2002 budget:

*

Social Security: 23%

Defense: 16%

*Other entitlements: 13%

Medi-care: 12%

Interest: 10%

**Medi-caid: 7%

Other spending: 19%

*

*Such as food stamps and farm aid.

**Known as Medi-Cal in California

Source: Office of Management and Budget