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Future Costs Aren’t in Mix, Critics Contend

Times Staff Writer

President Bush says he can cut an expected record-breaking budget deficit in half over five years while still boosting military and homeland defense spending. But his ability to keep that promise rests not only on what he put into his proposal, but also what he left out.

The fiscal 2005 budget the president presented to Congress on Monday, critics point out, fails to count upcoming costs in the war in Iraq. It also doesn’t take into account the future cost of fixing a glitch in the alternative minimum tax. Or the big increase in Social Security payouts due to hit when baby boomers start retiring.

“The way he makes it look as though it’s under control is he just leaves out a lot of things,” said North Dakota Sen. Kent Conrad, ranking Democrat on the Senate Budget Committee. “This is not credible. It’s not real. It’s not being frank and direct with the American people as to the challenge that’s facing us.”

Every president’s budget is, in part, an act of wishful bureaucratic thinking. And in this regard, Bush is no exception. But the scale of the wishfulness this time had some Washington veterans shaking their heads.

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“This goes far beyond the degree of playing games with the numbers to make them look good of any president I can remember,” said Robert Greenstein, executive director of the Center on Budget and Policy Priorities, a liberal group. “It’s very disturbing in light of how severe the midterm and long-term deficits are.”

Democrats and “deficit hawk” Republicans grumbled Monday that the president appeared to have inflated the size of the estimated 2004 deficit in order, perhaps, to make it easier to keep his promise of halving the deficit over time. The White House now projects a $521-billion deficit this year, up from a $380-billion estimate in summer.

“There is speculation that they are overestimating the deficit now so that they will come in lower later on,” said Stan Collender, a longtime budget watcher who heads the Washington office of Financial Dynamics, a public relations firm.

Budget experts pointed to a few items in the Bush proposal that they considered unrealistic at best and, at worst, deceptive.

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* Defense spending: The president said his proposed defense budget of $401.7 billion increases spending by 7%. But that figure does not include a cent to fund the fighting in Iraq and Afghanistan. Pentagon officials have said they will ask for more money for that next year.

“It’s the elephant sitting in the corner of the room that nobody wants to talk about,” said Chris Hellman, budget analyst at the Center for Arms Control and Non-Proliferation. “You can’t talk rationally about your projected spending when you’re leaving what could be as much as 20% of the annual Pentagon outlay off the table.”

Administration officials project that the 2005 request, when it does come, will exceed $50 billion.

Although the Pentagon historically has funded wars outside the normal appropriations process, not since Vietnam have the supplemental requests been, in inflation-adjusted dollars, so immense.

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Budget-watchers complain that unlike the Pentagon’s annual funding request, which is meticulously itemized, the supplemental appropriations since 2001 have been broken down only into vague categories. They also have been sent to Congress at the last minute, reducing lawmakers’ ability to scrutinize them.

“There is a lingering notion that any amounts of money provided through emergency supplementals don’t deserve the kinds of scrutiny that the rest of the budget receives,” said Cindy Williams, a former director of national security studies with the Congressional Budget Office who now is at the Massachusetts Institute of Technology. Pentagon analysts say the reason costs for Iraq and Afghanistan are not in the regular budget is that they are unpredictable. But that explanation does not satisfy Robert Kogan, a senior fellow at the Center on Budget and Policy Priorities.

“Their budget assumes that we will be completely withdrawn from Iraq, Afghanistan and all aspects of the war on terrorism by Sept. 30 of this year,” Kogan said.

“It’s true we don’t really know what they will cost next year, but we do know that the number isn’t zero,” he said. “And zero is the number in the budget for 2005 and every year after that.”

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* Alternative minimum tax: The budget proposes to permanently extend most of the president’s tax cuts of 2001 and 2003 at a 10-year cost of $1.24 trillion, according to the administration. But critics charge that the figure understates the true cost by leaving in place a provision that would drastically increase taxes on many families.

The problem comes from the alternative minimum tax, which was set up in the late 1960s to catch a handful of millionaires who had escaped paying taxes. Now, its provisions are ensnaring more people.

By 2010, 70% of two-income families with a combined income of $75,000 will be required to pay the tax, which means they will lose popular tax breaks such as the deduction for mortgage interest and the personal exemption for themselves and their children. Current protections against the tax, approved in 2001 and 2003, are set to expire at the end of this year.

Bush has ordered Treasury officials to fix the tax problem and has made it clear that he will not leave it in place. All the same, his budget proposal includes only a one-year patch, rather than a permanent repair.

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Independent analysts estimate that the 10-year cost of correcting the alternative minimum tax problem would add a half-trillion dollars to the tab for the administration’s latest tax cut proposal -- and to the deficit.

* Social Security: President Bush frequently says that workers should be able to divert at least some of their Social Security taxes into privately owned savings accounts. But experts say his budget fails either to prepare for such reform, or to shore up the finances of the current system in preparation for a wave of baby boom retirees.

“The biggest deceitful accounting measure in this budget is that we do not account for the increased Social Security debt,” said William A. Niskanen, chairman of the Cato Institute, a libertarian research group.

Experts estimate that Social Security, which now accounts for 4% of gross domestic product, will increase to 6% of GDP in 2030. And if Bush pushes ahead with his plans to create individual accounts, the system will incur start-up costs that some specialists say will be significant.

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“Today, President Bush delivered a budget that is built on denial and deceit,” said John Podesta, chief of staff to President Clinton and director head of the liberal Center for American Progress.

“We’ll sooner find nuclear weapons in Iraq than cut our nation’s deficit in half with this budget.”

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Times staff writers Mary Curtius, Peter Gosselin and Esther Schrader contributed to this report.

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