Both Sides Fault Bush’s Budget Plan

President Bush unveiled a $2.4-trillion election-year budget Monday that promised a new effort to limit the growth of government but still embraced deficit spending for years to come.

The budget, which provides a window into what Bush would do if elected to a second term, calls for continuing the robust expansion of defense and homeland security spending that has been the hallmark of his administration.

Bush also called for consolidating one of the biggest accomplishments of his first term in the White House -- the tax cuts enacted in 2001. He proposed making permanent the sweeping cuts, which are to expire before the end of the decade

The budget is the opening shot of an election-year battle as Bush’s proposals make their way through the Republican-controlled House and Senate. It will set up the debate between the parties, and will help Bush build support within his own party.

For conservative Republicans, Bush’s budget is intended to show a renewed commitment to their cause of fiscal discipline. Many of them have been disillusioned with budget policies that they consider profligate. But the budget also includes increases for education and arts funding, which appeals to swing voters and moderate Republicans.

Bush built his new budget for the year that begins Oct. 1 around the goal of reducing this year’s $521-billion deficit by half within five years -- mostly by imposing a virtual freeze on spending for everything but national defense, homeland security and federal benefits.

“The government must exercise fiscal responsibility by limiting spending growth, focusing on the results of government programs and cutting wasteful spending,” Bush said in his formal budget message.

Some conservative critics remain unimpressed, saying Bush’s budget does not go far enough to curb Medicare, Social Security and other big benefit programs.

“I see almost nothing good about this budget,” said William A. Niskanen, chairman of the Cato Institute, a libertarian research group. “This is big-government conservatism.”

Even if Bush succeeded in his proposal to reduce the deficit to $237 billion in 2009, the gap would still be bigger than in all but three years over the last generation. But the cuts Bush proposes -- including the elimination of 65 programs -- may go too far for many in Congress, where even Republicans warn that it is unrealistic to expect lawmakers to squeeze popular programs in an election year.

“It is all fantasy,” said a senior House Republican aide.

What’s more, the budget probably understates future deficits because it does not include funding for several initiatives that administration and congressional officials expect or hope to be enacted. Most notably, it includes no funding for military operations in Iraq and Afghanistan -- an expense that Pentagon officials said could exceed $50 billion in 2005.

The budget also makes no provision for Bush’s idea of reforming Social Security to allow people to invest part of their payroll taxes in individual investment accounts, an initiative that could cost more than $1.24 trillion over 10 years for the transition to a new system. Although Bush is expected to campaign on the politically volatile issue, he is not pushing wary Republicans to act on it before the election.

“It’s a subject of such great sensitivity and broad political interest that we need to get the political debate going on it before there’s an actual legislative proposal sent up to the Hill,” said Joshua Bolton, Bush’s budget director.

Democrats criticized the budget for omitting many likely expenses, saying it undercut Bush’s claim to be serious about reducing the deficit.

“This budget is neither credible nor realistic because it omits so many costly items,” said Rep. John M. Spratt Jr. of South Carolina, the ranking Democrat on the House Budget Committee.

On the presidential campaign trail, Bush’s Democratic rivals portrayed his budget as an advertisement for why voters should not reelect him.

“George W. Bush comes out of the White House to deliver his budget, and once again, all of America falls in a deep, dark shadow of deficit,” said Sen. Joe Lieberman of Connecticut. “We can’t afford another four years of the same destructive fiscal leadership.”

Retired Gen. Wesley K. Clark said it laid bare Bush’s priorities: “Tax cuts for the rich and tough luck for everyone else.”

Bush’s proposals could be substantially revised as Congress writes its budget this spring and implements it with spending and tax bills.

Bush portrayed this budget, like his last two, as driven by the exigencies of the war in Iraq and the struggle against terrorism.

“Our nation remains at war,” Bush said. “This nation has committed itself to the long war against terror.”

Although he has argued in previous years that balancing the budget should not be a top priority while the nation is at war and in a recession, he is now putting more emphasis on reducing the deficit, which he projects will peak this year at $521 billion.

His budget estimates that his policies will bring the deficit down to $364 billion in 2005 and $237 billion by 2009. The deficit as measured as a share of the economy -- a yardstick that many economists say is a more significant gauge of the deficit’s effect -- would drop from 4.5% of the gross domestic product in 2004 to 1.6% in 2009.

The administration expects the deficit to drop in part because of increased revenue from an improving economy. The budget also calls for cuts that would come almost entirely from “discretionary” spending -- programs whose budgets are controlled by Congress in appropriations bills.

But that is less than one-fifth of the federal budget, the rest flowing through “entitlement” programs such as Medicare and Social Security.

Even some Republicans are bridling at Bush’s focus on the discretionary programs. They warn that freezing that small part of the budget will do little to reduce the deficit.

“While I am dedicated to developing fiscally conservative budgets, no one should expect significant deficit reduction as a result of austere non-defense discretionary spending limits,” said House Appropriations Chairman C.W. “Bill” Young (R-Fla.). “The numbers simply do not add up.”

Although the centerpiece of last year’s $2.2-trillion budget plan was a big tax cut to stimulate the economy, this year’s budget includes little more than retreads of past proposals that have languished in Congress.

The president’s top priority is to permanently extend most of the tax cuts of 2001 and 2003. Bush also is recycling proposals to increase tax incentives for savings.

In setting spending policy, Bush has made room for increases in his top priorities -- defense, homeland security and education -- while squeezing other areas. Six of the Cabinet’s 15 departments would see their budgets cut, with Agriculture taking the biggest hit:

* Defense: The Pentagon would be the big winner if Congress approves Bush’s request to boost defense spending by 7% to $401.7 billion. That would be the seventh straight year of defense budget increases, a string unseen since the end of World War II.

And more money is on the way because the budget does not include funds for continuing military operations in Iraq and Afghanistan. Pentagon officials said it could cost more than $50 billion more if troops remain there in force. They expect to send a supplemental budget request to Congress early in 2005.

* Homeland Security: Programs across the government would see a $6 billion-increase to $47.4 billion. That includes increased spending on intelligence, technology, border protection and bioterrorism preparedness.

The budget would overhaul and cut spending for programs that deliver aid to state and local law enforcement agencies. The principal local aid programs would be reduced from $4.4 billion to $3.6 billion. However, the budget would restructure the program to provide a 60% increase in aid to highly populated areas such as Southern California.

The Justice Department would also get a big increase for anti-terror programs. But that would be partially offset by proposed cuts in other programs that are popular with members of Congress, including grants for community-oriented policing programs.

* Education: The department would receive a 3% increase -- to $57.3 billion -- under Bush’s budget, the biggest boost for a Cabinet department not handling security issues. That includes $1 billion in increases for programs aiding disadvantaged and handicapped students.

* Space: In keeping with Bush’s vow to reinvigorate America’s space program, NASA’s budget would increase nearly 6%, most of it aimed at his long-term plan to build a base on the moon and explore Mars.

The money would be gradually shifted from programs in Earth orbit such as the space shuttle, which is scheduled to be retired at the end of the decade.

* Environment: The Environmental Protection Agency is targeted for one of the largest cuts of any agency -- $606 million, or 7% of its budget -- most of it aimed at water quality programs.

The largest single cut -- $492 million -- would come from money for sewage treatment plants. Congress has rejected past Bush efforts to cut water-quality programs.

* Health and Human Services: Programs to promote marriage and sexual abstinence are among the biggest winners in the department’s budget proposal. Funding for abstinence-only sex education would be doubled to $270 million; a new $50-million grant program for faith-based organizations would promote “responsible fatherhood and healthy marriage,” and $120 million would be devoted to research and pilot projects designed to promote marriage and stable families among low-income Americans.

The Food and Drug Administration would spend an additional $60 million to protect the nation’s food supply from natural and terrorism-related pathogens. An additional $8 million would be devoted to efforts to prevent mad cow disease.

The budget also calls for tax credits and tax-free savings accounts to expand the availability of healthcare and make health insurance more affordable. The administration’s 10-year, $70-billion proposal for refundable health insurance tax credits is $19 billion lower than last year’s proposal.

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Times staff writers Ricardo Alonso-Zaldivar, Mary Curtius, Faye Fiore, Peter Gosselin, Vicki Kemper, Jon Marino, Maura Reynolds, Rick Schmitt and Esther Schrader contributed to this report.