Bush Budget Plan Strikes Home, Not Deficit

President Bush today will propose a $2.7-trillion budget that would take another slice out of domestic spending next year -- but still leave a huge $355-billion deficit.

In Bush’s budget for fiscal year 2007, which begins Oct. 1, the departments of Defense and Homeland Security would continue to grow at a rate greater than inflation.

But most other federal departments, from Agriculture to Veterans Affairs, will be asked to get along next year with less money, and with no allowance for inflation or population growth.

Altogether, Bush’s budget would save $14.5 billion next year by eliminating or sharply curtailing 141 federal programs -- fulfilling his vow in last week’s State of the Union address to reduce the costs of what he called “non-security discretionary spending.”

Broken down, those range from a relatively small nick in Medicare’s enormous growth to the virtual elimination of a small program that distributes food to the elderly.

The administration would continue to chip away at entitlement programs, which mandate that certain groups, such as the elderly and the poor, receive federal benefits. The savings in this category would be $65 billion over the next five years.

Bush’s proposed budget, however, is only preliminary because it has not undergone congressional review and debate.

It also does not include the full cost of the wars in Iraq and Afghanistan.

As described by analysts who have seen them, the budget documents being made public today reflect a financial climate so tight that there is scarcely any room for innovation. They also reflect a president bent on curtailing the reach of government.

Even the one major new domestic program that Bush described in his State of the Union address -- the American Competitiveness Initiative -- offers nearly $3 in tax cuts for every dollar in new spending.

Bush would reinstate the research and experimentation tax credit for business, which Congress let expire at the end of last year, at an annual cost of $4.4 billion. He would spend $1.6 billion for measures -- including the placement of 100,000 new math and science instructors in elementary and secondary schools -- with the long-term goal of turning out more engineers and computer specialists.

The proposed budget anticipates a deficit of $355 billion -- lower than in any of the previous three years, which hold down the top three spots in the deficit derby. In the current fiscal year, the White House says, the deficit is headed for $423 billion -- the greatest on record in dollar value, in large part because of the costs of the wars in Iraq and Afghanistan and of the rebuilding efforts along the hurricane-ravaged Gulf Coast.

As a share of the national economy, however, the Bush deficits trail far behind those run up during the two world wars, the Depression and the presidency of Ronald Reagan.

And provided that the deficit is measured as a share of the gross domestic product, Bush is on track to keep his promise to cut the deficit in half between 2004 and 2009, the year he leaves office.

Bush’s budget makes room for approximately 5% growth for both the Defense and Homeland Security departments -- well over the current inflation rate of 3.4%.

The Pentagon’s budget of about $440 billion includes $50 billion for the wars in Iraq and Afghanistan. The same was true of last year’s Defense Department budget.

But last week, the administration asked Congress for an additional $70 billion for the wars.

Of the 141 programs that Bush will challenge Congress to eliminate or sharply cut back, many were on a similar list of 154 programs last year -- almost a third of them in education. Most of those 154 programs survived, only to be targeted by the administration again this year.

The program singled out by Bush for the deepest cuts is Medicare, which provides healthcare for about 43 million elderly and disabled beneficiaries; under his budget, spending would still grow, but at a lower rate than if nothing was done. Of the total $36 billion in Medicare savings over five years, $20 billion would result from juggling the formula by which hospitals are paid.

Hospital reimbursements are now boosted by an annual percentage equal to the increase in the price of a basket of goods and services they buy: X-ray machines and hospital beds, for example. This year that figure is about 3.4%.

Under the Bush budget, that figure would be reduced to just under 3%.

“Hospital cost increases have been unjustifiably rapid,” said Glenn M. Hackbarth, an Oregon lawyer who is chairman of the Medicare Payment Advisory Commission, an independent federal body that advises Congress on Medicare issues and recommended the new formula.

Robert D. Reischauer, the panel’s vice chairman, agreed with the recommendation but pointed out that healthcare was the largest employer in most congressional districts.

“It’s going to be very difficult for members of Congress to tighten the belts of the medical sector in an election year,” said Reischauer, who is president of the Urban Institute, a nonpartisan economic and social policy research group.

The president will also ask Congress to increase the cost to wealthy seniors of their Medicare coverage for doctor’s office visits.

The premium, now $88.50 a month, is already scheduled to rise next year for elderly people with incomes exceeding $80,000. For those earning $200,000 or more, the monthly premium will be $284.

Bush’s intention to seek savings in Medicare represents a change in strategy. Since 2003, when Congress enacted the Medicare prescription drug benefit, which took effect this year, Bush has shied away from proposing Medicare changes for fear that Congress would take the opportunity to change the drug benefit.

At the same time, Bush will not ask Congress this year for substantial reductions in Medicaid, the federal-state program that provides healthcare for the poor. In past years, it has been a frequent target of budget-cut proposals.

But it was hit hard with cuts in the broad spending bill that cleared the House by a scant two votes last week, after passing the Senate before Christmas only with the tie-breaking vote of Vice President Dick Cheney.

Democrats voted uniformly against the bill in both chambers, and many of the Republicans who dissented said they did so because of the Medicaid cuts.

Another program new to Bush’s hit list is the Agriculture Department’s commodity supplemental food program, which provides food packages to low-income elderly people, pregnant women and infants.