Bush Budget Has a Long Reach

Times Staff Writer

Two months after the White House began rolling out its latest budget, the full dimensions of President Bush's new tax and spending plan are finally coming into view, and they are even more sweeping than originally thought.

By linking expenditures forced on the nation by the 2001 terrorist attacks with a blizzard of other measures, Bush has produced a proposal that, if enacted, would result in a governmental about-face as far-reaching as those of Lyndon B. Johnson or Ronald Reagan.

Coupled with his already-approved 2001 cuts, the president's new tax package would make Bush the biggest tax cutter in at least two decades and possibly half a century. He would top even Reagan.

His proposed defense buildup would be bigger in real terms than Johnson's Vietnam buildup, and that's not counting the cost of a war with Iraq and its aftermath.

His plan to revamp Medicaid and other programs Washington runs jointly with the states would be, in the words of a former Nixon administration budget official, "one of the biggest pullbacks in federal responsibility we've ever seen."

"Frankly, I'm pretty surprised," said Richard P. Nathan, now director of the Rockefeller Institute of Government at the State University of New York in Albany. Until now, "we never heard much about this from this president."

Administration officials have freely acknowledged that the combination of big tax cuts, substantial new spending and dramatic shifts in programs would push the government, which was running surpluses only two years ago, into a deficit. But they have portrayed the problem as entirely manageable.

However, Congress' top fiscal analyst said Friday that the deficits the president's plan would generate would be substantially bigger than previously thought. And a close look at the White House's own estimates suggest they would be vastly more enduring than the administration has suggested.

The nonpartisan Congressional Budget Office said the new Bush budget would produce a steady stream of deficits over the next decade, totaling $1.8 trillion, and the agency indicated the proposal's effects would be even larger than that.

Analysts said that absent the president's plan, Washington would run a nearly $900-billion surplus over the next decade.

Yet even these figures miss a crucial aspect of the effect of deficits under the Bush plan -- one that the administration's own forecasts reflect but that officials have barely mentioned.

In contrast to the White House budget of last year, which showed the government climbing quickly out of deficits and running surpluses for most of the next two decades, its latest budget concludes that as things now stand, Washington is unlikely to ever again operate in the black.

In a long-term forecast buried deep in its new, five-volume budget, the administration shows that after growing during the next two years to 2.8% of gross domestic product then shrinking a bit, the deficit begins an inexorable expansion.

The burgeoning deficit is driven by the president's proposals and the mounting costs of retiring baby boomers. Administration estimates show the combination would drive the deficit back above 2% of GDP by 2020, above 5% of GDP by 2030, to nearly 9% by 2040 and so on.

Citing former Nixon economist Herb Stein's nostrum that "if something can't go on forever, it won't," analysts across the political spectrum said that in such circumstances something would have to give. For this administration, the something would be government spending.

"We're going to have to shrink the size of government," said Grover Norquist, president of Americans for Tax Reform, a conservative advocacy group with close ties to the White House. "Our goal is to cut it in half."

The only times in the last century that the government has shrunk by half were in the immediate aftermath of World Wars I and II.

Part of the reason that analysts have been so slow to come to grips with the dimensions of the administration's new budget is that Bush and his key aides have chosen not to trumpet the boldness of many of their proposals, especially some of the most controversial. Officials acknowledge as much in comments about their plan.

Asked to compare the new Bush budget with Reagan's controversial 1981 proposal, for example, White House budget director Mitchell E. Daniels Jr. pointed to the similarity of combining tax cuts and defense spending hikes. But he added, "What you haven't seen here, as opposed to the 1980s, is any attempt to terminate an entire department or zero out a program."

Daniels' Reagan-era predecessor David Stockman set off howls of protest by calling for the consolidation or elimination of hundreds of federal programs from the Legal Services Corp. to Amtrak subsidies.

But the dimensions of the Bush budget are finally coming into focus, and at each turn they are they are bigger than almost anyone had previously thought.

Tax Cuts

The administration has sought to portray the combination of its 2001 cuts and its latest proposals as roughly half those of former President Reagan, and therefore middle-of-the-road.

But much turns on whether Bush's plan is compared with just Reagan's rate cuts or with the combination of his rate cuts and his indexing of income tax brackets for inflation.

A recent Treasury study and many independent analysts say the correct comparison is between the rate cuts alone.

Measured on that basis, Bush would top Reagan as a tax cutter. His enacted and proposed cuts would amount to 2.3% to 2.7% of GDP compared with Reagan's 2.1%, according to estimates by Peter R. Orszag, an economist with the Brookings Institution in Washington.

Defense

The president's proposed defense buildup would be bigger than the Vietnam buildup of the 1960s as measured in constant, after-inflation dollars, a key barometer of real resources devoted to a program.

In 2003 dollars, defense spending would peak at $451.9 billion, compared with the peak during the Vietnam buildup of $439.9 billion, according to an analysis of administration figures by the generally liberal Center for Strategic and Budgetary Assessments.

The proposed buildup does not include any money for the looming war with Iraq and its aftermath.

Administration and congressional sources said two weeks ago that achieving a military victory, occupying Iraq for six months and aiding regional allies such as Israel could cost between $80 billion and $100 billion. Defense Secretary Donald H. Rumsfeld immediately dismissed the figures as outsized. But in an updated estimate Friday, congressional budget analysts showed the conflict could cost even more than that.

Program Shift

Although Republican administrations from Nixon forward have made the idea of shifting power and programs from Washington back to the states a centerpiece of their agendas, Bush has barely mentioned the notion.

And with most states facing huge budget shortfalls as a result of stock market losses and the recession, there is little appetite even among GOP governors and state legislators for taking over tasks handled by Washington.

Nathan, the former Nixon budget official, said Bush proposals to encourage states to shoulder new burdens for Medicaid, the Head Start preschool program, child welfare services, unemployment compensation and job training would result in the greatest shift of power between Washington and the states in nearly four decades.

Even some architects of the plan worry that key elements would turn out to be a bad deal for states.

"If I were advising a governor, I'd recommend against it," former Bush White House policy advisor Ron Haskins said of the president's Medicaid plan.

Under the proposal, states could win extra money in the next few years by agreeing to assume greater control over the program for their low-income residents.

But the new money and control would come at the cost of allowing the federal government to make a fundamental change. It would convert the program from an "entitlement," under which Washington provides benefits to individuals who qualify no matter what the total cost, into a fixed "block grant" that Haskins warned could remain frozen at current levels or shrink in coming years.

"Congress and administrations don't have a very good record of keeping up federal funding once something becomes a block grant," he said.

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