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Bush’s Cut-and-Spend Plan Is Math-Challenged

Times Staff Writers

To hear President Bush talk about his plans for a second term, voters might think that the era of big government spending is back.

From his proposal to overhaul Social Security to his commitment to fighting terrorism and his initiatives on health, education and job training, the agenda Bush is spelling out in speeches and campaign documents calls for the robust use of government money.

All this comes from the same candidate who promises to cut the federal budget deficit in half by 2009 and whose Cabinet agencies are preparing for some serious belt-tightening of domestic programs if he is reelected.

That mixed message -- a smaller deficit, but costly new initiatives -- may have more appeal to swing voters than the simpler message of old-fashioned conservatism, which calls for smaller government and less spending.

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But many analysts say Bush’s second-term promises may be a poor predictor of what he could actually accomplish. Even some administration allies say it would be nearly impossible for Bush to achieve all his ambitious objectives and still halve the deficit by 2009.

“Can it be done?” said G. William Hoagland, top budget aide to Senate Majority Leader Bill Frist (R-Tenn.). “Sure. On paper. But politically it’s very difficult.”

To do it all, Hoagland said, “lots of other things would have to be eliminated, terminated.”

The result: Unlike Bush’s 2000 campaign platform -- whose major elements of tax cuts, school accountability and prescription drug subsidies for the elderly were enacted -- his 2004 promises may have to be sharply scaled back or abandoned if he wins a second term.

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Bush has made a big issue of arguing that Sen. John F. Kerry’s health and education campaign promises do not square with his promise to reduce the deficit. Bush argues that his Democratic rival would have to raise taxes or add to the deficit to enact his spending plans.

But if he wins reelection, Bush will have tough choices of his own. Some analysts predict that much of his agenda would wither if he achieved what seemed to be his top priority: making permanent the tax cuts enacted in his first term. Doing so would cut government revenue by more than $1 trillion between 2005 and 2014.

“The one sure thing that will happen if he becomes president is the tax cuts will be permanent,” said Mark Zandi, chief economist at Economy.com, a forecasting company in West Chester, Pa. “That will result in large, persistent budget deficits, so he will not be able to follow through on his other pledges.”

Bush has repeatedly pledged that in five years, he would halve the deficit -- measured as a share of the U.S. economy -- from this year’s expected peak of $521 billion, which amounts to 4.5% of the gross national product. That means Bush is aiming for a deficit of about $260 billion, or 2.25% of the GNP, in 2009.

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But that goal may already be out of reach, according to the latest figures from the nonpartisan Congressional Budget Office, which provides economic analysis to Congress. Unless current tax and spending policies change, the CBO projects that the deficit will be about $312 billion in 2009.

Chad Kolton, a spokesman for the White House Office of Management and Budget, disputed the CBO’s estimate, saying it assumed a higher long-term level of spending for operations in Iraq and Afghanistan than was reasonable. On the other hand, the CBO figure does not include the costs of making Bush’s tax cuts permanent or other elements of his second-term agenda.

Even many Republicans are skeptical that Bush can -- or will try particularly hard -- to stick to his deficit reduction promise, because it probably would require a level of spending restraint with no precedent in modern times.

“I don’t think he’s that philosophically committed to deficit reduction if it involves politically painful choices,” said Steve Moore, president of the Club for Growth, a Washington political group that advocates for lower taxes and smaller government. “He hasn’t talked about any program he would want to cut.”

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The only part of the budget easily controlled every year by Congress and the president is discretionary spending, which covers programs from the Pentagon to school aid to law enforcement. The cost of mandatory programs -- such as Medicare, welfare and food stamps, which pay out benefits to anyone who is eligible -- can be changed only if Congress alters those programs’ basic structure.

White House budget plans call for cutting overall funding for discretionary spending, other than for domestic security, by about 12% over five years, according to an analysis by the Center on Budget and Policy Priorities, a liberal research group in Washington.

The group’s analysts say that even bigger domestic cuts will be required if the plan is adjusted to reflect additional tax and spending initiatives Bush has endorsed but did not fold into his budget. These include spending on defense and anti-terrorism efforts and cuts in the alternative minimum tax -- a tax intended to keep the wealthy from sheltering all their income. It increasingly is applying to -- and raising taxes on -- middle-income individuals.

“We’d be talking about a 25% to 30% cut” in domestic programs, said Richard Kogan, a senior fellow and budget expert at the center. “There’s no precedent for that in the postwar period. It’s just not realistic to think anything like that is going to happen.”

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A glimpse of what could be in store in next year’s budget was provided in an Office of Management and Budget memo, leaked this year, that set stringent spending targets for federal agencies and departments as they began planning their budgets for fiscal year 2006, which begins Oct. 1, 2005. The memo sets targets below 2005 spending levels for a wide range of domestic programs: a 2.6% cut in education, a 3.1% cut in veterans’ affairs and a 1.9% cut in the Environmental Protection Agency.

Kolton, the OMB spokesman, described the memo as a routine document giving agencies preliminary guidance as they began their budget planning, and said it did not reflect where the budget would end up. But Democrats contend it is a window onto what it would take to meet Bush’s deficit-reduction goals without raising taxes.

Many analysts think that persistent budget deficits will also put a damper on Bush’s ability to win approval of an overhaul of Social Security -- a program that, starting in 2019, is expected to pay out to retirees more than it collects in taxes from workers.

Bush has not put forward a specific plan, but has said he wants to give workers the option of investing part of their Social Security payroll tax in private accounts -- an approach many think could save money by harnessing the power of the stock market to provide equal or better returns to workers than the government trust fund investments.

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Independent analysts, including the CBO, have estimated that it could cost at least $1.5 trillion over 10 years to make the transition to the new system, because the program would continue to pay benefits at current levels even as some younger workers diverted their payroll taxes to private accounts.

Bush campaign aides say those costs will be far outweighed by the long-term savings they expect from changing the Social Security system. But to make that case to Congress, Bush will have to overcome lawmakers’ tendency to make decisions based on the short-term.

“When the savings materialize in 2040, we will all be dead,” said Robert Reischauer, a budget expert and president of the Urban Institute, an economic and social policy research center in Washington. “We live in the present and borrow in the present.”

Bush has proposed initiatives in health and other domestic programs that his campaign estimates will cost about $73.4 billion over 10 years. They include tax incentives for individuals to establish tax-sheltered health savings accounts, as well as expanded college scholarships and aid to economically distressed communities.

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It is not clear how hard Bush would push for those initiatives, or how receptive Congress would be. Even now, some administration priorities have run into resistance in the House, where many conservatives are restless about the rise of government spending under Bush. Appropriations bills passed by the House in recent weeks shortchanged administration requests for more aid to community colleges, an initiative on space exploration, a foreign aid program for emerging democracies and an arts initiative promoted by First Lady Laura Bush.

Bush’s domestic spending initiatives are a drop in the bucket compared with his ambitious tax policy agenda, which doesn’t end with extending his tax cuts.

He has proposed several tax-sheltered accounts to encourage saving. The short-term cost to federal coffers are expected to be relatively modest -- $5.6 billion over 10 years, according to the Bush campaign -- but the cost is expected to be far greater in the future, when people start withdrawing money from these accounts. An analysis by the Urban Institute-Brookings Institution Tax Policy Center estimates that the revenue losses could eventually run $35 billion a year.

Bush has called for an overhaul of the tax code to make it simpler and fairer, and promises to appoint a commission to study the idea. But tax overhaul is a notoriously difficult idea to turn from campaign rhetoric to legislative reality.

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Grover Norquist, a conservative strategist and president of Americans for Tax Reform, predicted that the fate of Bush’s second-term agenda would hinge on whether the election gives the Republicans a bigger margin of control in Congress.

“He will move as quickly toward fundamental tax reform as the makeup of the House and Senate will allow,” said Norquist. “It’s the same with Social Security.”


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