Bush’s Budget Opts for Debt to Fund War

President Bush submitted a $2.1-trillion budget Monday that sets aside debt reduction and squeezes domestic programs to finance homeland security, the war on terrorism and another round of big tax cuts.

Reflecting Reaganesque fiscal priorities, Bush’s budget for fiscal year 2003 asks Congress for new tax cuts worth $590 billion and defense spending increases totaling $550 billion over the next 10 years.

He would accomplish those objectives by forgoing balanced budgets for at least three years and abandoning last year’s pledge to reserve Social Security surpluses to pay off the national debt.

For that, the president offered no apologies. Sept. 11 was the Pearl Harbor of his generation, Bush said, and the challenges it presents call for a different kind of fiscal strategy from a knee-jerk aversion to red ink.

“The budget for 2003 is much more than a tabulation of numbers,” Bush said in his budget message to Congress. “It is a plan to fight a war we did not seek, but a war we are determined to win.”

The president will also have to battle lawmakers, lobbyists and constituents whose budget priorities differ from his. The first shots were fired almost immediately, with critics accusing Bush of endangering Social Security by pressing for new spending and tax cuts.

“This budget allocates funds to buy bombs, guns and aircraft to help fight the war on terrorism, but it puts the financial security of millions of Americans in jeopardy,” said Rep. Charles B. Rangel (D-N.Y.). “This ‘bomb now, pay later’ approach is fiscally irresponsible.” Bush’s second budget reflects a remarkable reordering of fiscal priorities in response to the terrorist attacks and the deepening recession. A year ago, the White House said the federal government would accumulate a $5.6-trillion surplus over 10 years. Bush’s new budget slashes the 10-year surplus estimate to $1 trillion. Taking Social Security surpluses off the table would produce a $1.5-trillion shortfall.

Physically, the Bush budget book displays some new features. Printed on glossy paper, it is full of color pictures. It sports reader-friendly boxes; one asks readers if they would fund a parking facility at the National Institutes of Health headquarters over sanitation facilities for Native Americans.

The deficits that Bush projected are relatively new. He estimated that the government would end this year $106 billion in the hole, the first deficit since 1997. The revenue shortfall would shrink to $80 billion next year and $14 billion in 2004, with surpluses projected from that point forward.

White House budget director Mitchell E. Daniels Jr. defended the revival of deficit spending after four years of pay-as-you-go government. He said the United States was waging a “two-front war” against terrorism, at home and abroad, and the anticipated deficits would be the smallest ever during a recession.

“Running large surpluses and paying down debt is a very important objective in this administration,” Daniels said. “It is simply the case that at the moment, there are two or three things that come ahead of even that goal.”

Congressional Republicans quickly endorsed the president’s priorities. “This is not necessarily a budget for bookkeepers, it is a budget for security and victory,” said Sen. Pete V. Domenici of New Mexico, the Budget Committee’s ranking Republican.

Democrats served notice that they intended to arm their version of the budget with a “trigger” mechanism that would stop tax cuts and spending increases if deficits ballooned. They said they were likely to give Bush all he wanted for defense and homeland security, but were reluctant on more tax cuts.

“When you’re in a hole, the first thing to do is stop digging,” said Rep. Jim McDermott (D-Wash.).

Biggest Defense Boost Since Reagan Era

Bush’s 2003 spending plan, the first presidential budget to top $2 trillion, projects $1.2 trillion in mandatory spending next year on Social Security, Medicare, Medicaid and other entitlement programs over which Congress and the president have little year-to-year control. The wrangling is reserved for tax policy and discretionary spending subject to Congress’ annual appropriation process on Capitol Hill.

Bush’s budget proposes $773 billion in discretionary spending next year, an 8% increase. But much of the increase is earmarked for the defense budget, which would jump 9% to $379 billion in the fiscal year that begins in October, and homeland security, which would nearly double to $38 billion.

The defense spending increase would be the biggest in 20 years, Bush said. It would launch a long-term military buildup reminiscent of the big defense budgets of the Reagan administration.

In another reprise of the Reagan years, Bush is asking Congress to pile $590 billion in tax reductions on top of the 10-year, $1.3-trillion tax-cut plan enacted last year. Some of the tax relief, an estimated $65 billion next year, is billed as short-term economic stimulus to fight the recession. The biggest cuts would come in 2011 and 2012, in the form of extensions of last year’s individual income tax reductions beyond their scheduled expiration in 2010.

The president’s budget priorities “seem Reaganesque to me, having lived through that era,” said Brookings Institution fellow Alice Rivlin, who served as President Clinton’s budget director. “More defense, tax cuts and less domestic.”

Overall discretionary spending outside of defense and homeland security would rise 2% next year under Bush’s budget; the increase is barely enough to keep pace with an inflation rate forecast at 1.8%.

Bush proposed outright cuts in some programs. Federal highway outlays would fall by $8.5 billion under an automatic funding formula that the administration does not intend to offset.

Big budgetary blows would fall on the Labor Department, where a number of job programs are targeted for reduction; the Environmental Protection Agency, which would receive less money for clean air and water programs, and the Army Corps of Engineers, which the administration says has taken on projects that depart from its mission of aiding navigation and minimizing floods.

Even within agencies whose overall budgets would increase, funding would be reduced for programs given failing marks under a performance review system inaugurated by the administration. “When objective measures reveal that government programs are not succeeding, those programs should be reinvented, redirected or retired,” Bush said in his message to Congress.

Among the targets of Bush’s budget scalpel are the special projects, characterized by some critics as pork, that are added to appropriations bills by members of Congress. The time-honored practice “has gotten out of hand,” Daniels said. “We now have entire programs of the federal government for which every penny has been earmarked for somebody’s pet project.”

Bush’s budget proposes significant funding increases for a few favored programs outside of defense and homeland security. It sets aside $190 billion over 10 years for improved Medicare benefits, including limited prescription drug coverage for retirees. It would boost outlays for selected health and education programs, and reserve $74 billion over 10 years for agriculture subsidies sought by farm-state lawmakers.

On Capitol Hill, Democrats criticized Bush for submitting a budget that goes into deficit for the first time in four years, but offered no suggestions about how to bring it back into the black.

In fact, their reactions suggested they would support policies that would make the deficit even bigger. While supporting Bush’s increases in defense and homeland security, Democrats opposed offsetting cuts in highway, environmental and other domestic programs, and insisted they would not seek a tax increase or rollback of last year’s tax cut.

“All of us understand our first obligation is to defend this nation,” said Senate Budget Committee Chairman Kent Conrad (D-N.D.). “The president is going to get the resources he requests for national defense and homeland security.”

Republicans called the spending plan a “wartime budget” that reflects broad consensus that Congress should provide whatever money is needed to shore up the nation’s defense and secure its homeland.

Even so, some Republicans say they will scrutinize and possibly reorder priorities in Bush’s big defense and homeland security budgets. Congress is expected to be particularly reluctant to grant Bush’s request for a $10-billion contingency fund unless Congress has more input into how the money would be spent.

As his budget began taking fire from the left and right in Washington, Bush flew to Eglin Air Force Base in Florida’s Panhandle, where he received a hero’s welcome as he touted his military spending plan.

Addressing several thousand troops and their families in a gigantic hangar, the president won rousing cheers when he cited the proposed $48-billion defense budget increase, which includes a substantial pay raise for military personnel.

Clad in a brown leather bomber jacket, Bush demanded that Congress make passage of the Pentagon budget its “No. 1 priority.”

Today, the president travels to Pittsburgh to promote the $11 billion his budget earmarks for bioterrorism defenses.

On Wednesday, Bush is scheduled to return to lower Manhattan to tour a New York police communications center to emphasize his budget priorities for “first-responders” to terrorist attacks.

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Budget Highlights

Taxes

Bush is proposing $590 billion in tax cuts over 10 years to promote goals ranging from helping people pay health insurance premiums to subsidizing children who flee failing schools. Many of the new cuts would take effect in 2003 and 2004. In addition, Bush’s budget would make all of the 2001 tax changes, many of which expire in 2010, permanent. Several proposals are aimed at fostering charitable giving. One would allow taxpayers who don’t itemize deductions to deduct a limited amount in charitable contributions. Teachers would be able to deduct out-of-pocket costs of setting up their classrooms.

Health

Bush’s budget completes a campaign started by former President Clinton: doubling the National Institutes of Health budget over five years. Bush would boost NIH outlays to $24.3 billion, an increase of $3.7 billion. Nearly half of the increase would go to bioterrorism research, a sixfold bump over current funding and a shift in the traditional practice of raising outlays for all the institutes by about the same level. The National Cancer Institute, up 13%, also would get a disproportionate share of the additional funds. The budget for Medicare would grow 5.7% per year from 2003 to 2012.

Transportation

Homeland security gets top billing in Bush’s transportation budget. The spending plan includes a $4.8-billion request for a new Transportation Security Administration that is taking over airport security, and the largest increase ever in Coast Guard funding, from $5.6 billion to $7.1 billion. But behind the numbers lies considerable uncertainty. Officials said the funding request for the security agency is only a preliminary estimate, and millions more may be required.

Environment

Bush proposes slicing $300 million from funds Congress gave the Environmental Protection Agency this year, much of the money coming from clean-and safe-water programs. The EPA said the agency was merely trimming congressional earmarked projects that didn’t align with the administration’s priorities. But environmentalists and their allies in Congress said the funding was needed. The budget also calls for deep cuts in funding for the Army Corps of Engineers.

Energy

Bush is seeking $21.9 billion for the Energy Department, an increase of $580 million. Funding for nuclear security and other national security programs would increase, as well as programs for environmental cleanup and management. The department proposes to accelerate the cleanup of weapons-testing sites, as well as the consolidation of nuclear waste and materials.

Foreign Policy

The administration is seeking an increase of $1.4 billion, or 6%, for the State Department. Most of the money would be used, directly or indirectly, in the war against Terrorists. About $3.6 billion is earmarked as economic and military aid to U.S. allies in the anti-terrorism fight. A big increase would go to Jordan, which would receive $123 million in military aid and $100 million in economic aid for its cooperation in the war.

Welfare

Welfare spending, which stirred a heated partisan battle not long ago, would remain at about current levels under the Bush budget plan. The central element in the welfare program--a $16.5-billion grant to the states--would remain largely intact after Congress reevaluated welfare reform this year, according to the White House plan.

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Contributing to this report were Times staff writers Kathy Kristof in Los Angeles, Edwin Chen at Eglin Air Force Base, Fla., and Janet Hook, Megan Garvey, Jonathan Peterson, Ricardo Alonso-Zaldivar, Elizabeth Shogren, Vicki Kemper, Paul Richter and Sean Gill in Washington.

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