Bush’s Budget Reserve Cannot Be Counted On

In the budget he unveiled Wednesday, President Bush offers Americans almost everything they could possibly want in a federal spending plan--a big tax cut, major debt reduction, new spending programs and money to spare.

Can he deliver?

The president says he can. Key to his confidence is a $1.4-trillion reserve that budget documents say would be left to cover “additional needs, debt service and contingencies” after everything else had been paid for.

But a close look at the reserve shows that well more than half--and perhaps all--of it is either money that is unlikely to become available, or dollars from sources, such as the Medicare hospital trust fund, that Congress and the voters have specifically said they don’t want to touch.

The dicey quality of the reserve figures all but guarantees that the political fight over the Bush budget will be raucous.

“The reserve is a convenient illusion,” said Robert Greenstein, director of the Center on Budget and Policy Priorities, a liberal group whose budget research commands wide respect. “The reality is the numbers don’t add up.”

All of this could significantly influence the outcome in Congress of Bush’s proposed tax cut. Recent polls show that a large number of voters doubt the nation needs or can afford a big tax cut. Analysts say that only if Bush can show that the money for a cut is there, with plenty to spare, will he be able to rally support for his plan.

The White House itself was cautious Wednesday about the size of the reserve fund, which would be available to cover extra costs over the next 10 years.

In its budget document, the administration described the fund as an “unprecedented $1.4-trillion reserve.” That’s what is left over of the $5.6-trillion surplus after $2 trillion has been used for debt reduction, $1.6 trillion for tax relief and $600 billion for various other uses.

But in his public comments during the day, Bush reduced the reserve figure to $1 trillion.

“Like any wise person who cares about budgets, we ought to set some [money] aside for contingencies,” he told an Omaha audience. “So we set aside a trillion dollars.”

The $400-billion difference is the administration’s estimate for the additional interest that it will owe because it will pay off the national debt more slowly than the Clinton White House had proposed.

But what of the remaining $1 trillion?

Administration officials say that amount is free of any strings and available to meet new demands. “It’s not pre-committed,” said Lawrence B. Lindsey, Bush’s closest economic advisor and head of the White House’s National Economic Council.

But critics charge that a substantial chunk of that money--perhaps all of it and then some--is already spoken for. Chief among their examples is Medicare.

Budget documents show that the White House apparently expects to spend $153 billion of the remaining reserve on a prescription drug program for the poor and an overhaul of the Medicare program.

Critics say that’s the least of it. They say the administration fails to properly account for a $526-billion surplus that Medicare is expected to build over the next decade. Congress says it wants that money spent on Medicare beneficiaries, making it unavailable for what critics charge the White House is doing: using it to pad the reserve.

If they are right, that pushes the reserve below $500 billion.

Administration officials argue that while some developments could drain the reserve, others could replenish it. They say, for example, that to be conservative they have assumed tax revenue will grow more slowly than the economy, even though they have grown substantially faster in recent years.

But for every possible adjustment in the administration’s favor, there are others that appear likely to drain the reserve. For example:

* Agricultural payments: The administration assumes that government payments to farmers will drop by almost $12 billion a year by 2006. But many lawmakers, including farm-state Republicans, doubt that such a reduction will occur. Additional costs to the reserve: $50 billion to $100 billion.

* Alternative minimum tax: This is part of the tax code designed to ensure that high-income households pay some taxes. It has been known for some time that flaws in the provision will cause the number of people affected by it to rise from 1.3 million to about 15 million by 2010. The GOP-controlled Joint Committee on Taxation concluded last fall that the Bush tax cut would raise that number to 27 million. Both Republicans and Democrats have pledged to fix the problem. Additional costs to the reserve: about $300 billion.

* Defense: While Bush has said he wants to build a new missile defense system and substantially boost the military budget, he has delayed putting a price tag on his proposals until Pentagon spending is reviewed. While Bush’s budget proposes a moderate increase for next year, it shows only tiny increases thereafter--something that most observers predict will change. Additional costs to the reserve: hundred of billions of dollars.

On at least one charge--that its budget rests on an unrealistically rosy economic forecast--the administration had a ready rejoinder.

Democrats said Bush’s optimistic economic forecast implied improbably large flows of income tax revenue. They said a recession, or even a year of negligible growth, this year would cut a big hole in the administration’s projected surpluses.

Administration spokesmen replied that the budget’s economic assumptions were less upbeat than other forecasts. “This budget is built on very conservative and cautious assumptions,” said White House Budget Director Mitch Daniels.

In fact, the administration assumed that growth would slow to 2.4% this year before reviving to annual rates of 3.1% to 3.3% for the rest of the decade. That’s about the same as the Congressional Budget Office’s latest forecast and slightly more pessimistic than the “Blue Chip” survey of dozens of private prognosticators.

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Times staff writer Joel Havemann contributed to this story.

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Effect of the Proposal

How items President Bush proposed would affect people:

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700,000: The number of veterans enrolled in both Veterans Administration and Defense Department health plans. Bush’s plan would make them choose only one.

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$17,500: The maximum amount forgiven in student loans for math or science majors who agree to teach in needy high schools for five years. Up from $5,000.

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$7,500: The amount of a permanent adoption tax credit. Up from a $5,000 credit set to expire next year.

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$400: The amount teachers would be able to deduct for out-of-pocket classroom expenses.

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$300: The amount a family of five making $32,000 could save in income taxes in the first year of tax cuts. A childless single person making $60,000 could save $190.

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$290: The average worth of an additional military pay raise. Bonuses for some personnel.

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Six months: The maximum length of time immigrants would need to wait to have citizenship and green-card applications processed once more government workers are hired and performance incentives set.

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Several thousand: The number of flood-plain properties requiring repeated rebuilding from floods that would be cut off from federal flood insurance.

Source: Office of Management and Budget

AP/Los Angeles Times

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