Bush Unveils $2.4 Trillion Fiscal 2005 Budget

President Bush said this morning he is "confident" the government can halve the $521 billion deficit during the next few years, even while boosting homeland security and implementing what the administration called "the largest increase in the defense budget since the Reagan administration."

The president's comments followed release of the administration's $2.4 trillion budget proposal for the fiscal year that begins in October. The budget document acknowledged that the deficit was a "legitimate matter of concern."

But by trimming domestic spending, particularly for agricultural and environmental protection programs and by forcing Congress to exercise fiscal discipline, the administration said it expects to bring down the red ink to more acceptable levels.

"We are where we are because we went through a recession, we were attacked and we went through a war," Bush said during a photo opportunity. "These were high hurdles to overcome."

The choices in the $2.4 trillion budget closely track Bush's campaign platform, with the largest increases going toward defense, which is up 7 percent, and homeland security, which rises 10 percent. When those two categories are excluded, the rest of the budget's discretionary spending -- that is, funding that is not mandated by law -- is essentially flat at 0.5 percent, or less than the rate of inflation.

The exceptions to that freeze include the Education Department in general and the No Child Left Behind accountability program in particular. The budget includes increases for reading programs and Title I grants to school districts, which are aimed at lower income pupils; the amounts are commensurate with increases Bush proposed last year, as well. Democrats and many state and local education officials contend that the funding is still far from what is necessary to implement the testing requirements and other mandates of the No Child Left Behind law.

The December discovery of a Holstein infected with bovine spongiform encephalopathy, or mad cow disease, put food safety in the spotlight and the budget includes $568 million for enhancing food and agriculture security by improving detection and deterrence measures. The White House called that a 190 percent increase over last year's budget. However, the Agriculture Department overall took one of the biggest hits in the budget.

The other biggest loser in the budget is Environmental Protection Agency, although White House officials say no enforcement funds have been cut. The Associated Press figured that the USDA's budget authority would be reduced by 8.1 percent, while EPA's budget would be cut by 7.2 percent

Under the proposal, the nation's 1.8 million federal employees would receive a 1.5 percent increase in their pay and the 2.3 million members of the armed forces and reserves would get a 3.5 percent raise.

The proposed pay raise for civilian federal workers will likely set off a skirmish with members of Congress who contend that civil servants should be paid on par with the military. Federal unions also are likely to object to Bush's proposed civilian raise, in part because pay law calls for giving a 2.5 percent raise to federal employees next year.

Bush's budget will include no additional funding for operations in Iraq and Afghanistan beyond Sept. 30, an omission that both Democrats and Republicans are questioning.

In all, Bush requested spending at the annual discretion of Congress to be held to $818 billion in fiscal 2005, a 4.1 percent increase over this year. But if emergency spending in Iraq and Afghanistan are included in this year's spending level, the Bush request will actually be a 6.3 percent cut, from $873 billion.

The administration chose to highlight a number of "commitments to the future" apart from the war on terror. Among them were:

• Access to health insurance for low-income families through a refundable tax credit.

• An increase in funding for education programs, including programs for the poor, for special education and for reading programs.

• Increased money for "faith-based and community initiatives," including $1.9 billion in charitable tax incentives.

• $2.8 billion for an HIV/AIDS emergency plans, an increase of $400 million.

• Matching grants to promote "marriage and healthy family development, including abstinence by teens."

Congress must approve each part of the budget before the money is actually spent.

Although Republicans control both the House and the Senate, legislative leaders predicted that the budget would undergo major changes on its way to becoming law. These leaders said Bush did not include as much transportation funding as lawmakers will demand. Conservatives are likely to fight the increase he has proposed for the National Endowment for the Arts. Bush proposes a 6 percent increase in NASA's budget and that will be hotly debated because his proposal to return to the moon and then to Mars has not been embraced on either side of the aisle.

The actual budget is a 401-page document with a currency-green cover that looks in places like a campaign brochure, with color photographs of Bush bending over to greet an African American pupil and putting an arm around an elderly lady. One chart uses red ink to show spiking "Costs of the U.S. Tort System" in arguing for Bush's plan to limit lawsuits -- a key plank of the Bush-Cheney campaign and of his economic program.

Rep. John Spratt (D-S.C.), the top Democrat on the House budget committee, issued a statement saying Bush's budget "deepens the deficits that his policies have helped to create."

"These huge deficits are not just an accounting problem," he said. "They are a moral problem because our children and grandchildren will be forced to repay the record amounts of debt we are borrowing today."

In Bush's budget message to Congress, he said his three highest priorities are to "prevail in the War on Terror by defeating terrorists and their supporters," to "continue to strengthen our homeland defenses," and "building on the economic recovery that began in earnest in 2003 with policies that further promote growth and job creation."

"In addition, we will continue to strengthen the domestic institutions that best express our values, and serve the basic needs of all: good schools, quality and affordable health care, and programs that promote hope and compassion in our communities," Bush wrote.

The most expensive proposal of Bush's reelection campaign -- making three years of tax cuts permanent -- will largely have no impact on the president's budget deficit forecast, which extends out five years rather than 10, as was customary in the 1990s.

The true cost of extending the tax cuts would not come until 2011, long after Bush has left office. In 2012 alone, extending the president's 2001 and 2003 tax cuts would cost the Treasury $275 billion, the nonpartisan Congressional Budget Office said last week.

"The bottom line is, his budget is going to be like Swiss cheese," said Thomas Kahn, Democratic staff director of the House Budget Committee. "It's not only the programs he has [in the budget] but what he doesn't have to mask the size of the deficit."

Both Republican and Democratic congressional experts say Bush's biggest challenge is tackling rising deficits while he increases spending on defense and homeland security and rules out tax increases. His budget also does not propose any cuts to the majority of federal spending: entitlement programs such as Medicare, Medicaid and Social Security that are funded by congressionally mandated formulas, not by annual spending bills.

That means any cuts in spending are confined to the $362 billion currently going to programs not related to defense or homeland security, less than 18 percent of the total budget, a Senate Republican budget expert said. That block of money funds health research, education, housing, law enforcement, the State Department, environmental restoration and veterans programs, to name a few entities. If all such domestic programs were eliminated, the government would still have a significant budget deficit, Kahn noted.

The budget proposed a modest, one-year tax change to keep millions of Americans from facing the alternative minimum tax, a parallel income tax system originally designed to ensure the rich pay taxes but increasingly ensnaring the middle class. Bush's one-year "patch" for that would cost $23 billion and avoid longer-term costs that would thwart pledges to cut the deficit in half, congressional officials said.

Instead of proposing a long-term solution, Bolten has told GOP lawmakers, "We will be focusing on fundamental tax reform," a participant said.

CBO has said a modest 10-year fix would cost $469 billion.

The budget includes a $1 billion increase for special education, a $1 billion addition for poor school districts and an $18 million increase for the National Endowment for Arts, a request that has infuriated some conservatives.

But Bush is asking for $256 billion for transportation programs, considerably less than the $318 billion that Senate Republicans hope to spend on a major transportation bill due to be completed this year, and far less than the $375 billion House Transportation Committee leaders want.

The Senate intends to take up its version of the bill tonight, meaning the first clash of the budget season could come in weeks.

Bush renewed his proposal to establish new retirement and tax-favored savings accounts, a proposal that would eliminate taxation on interest, capital gains and dividends for most Americans.

But, congressional aides say, the primary motivation for keeping the proposals in the budget is the short-run deficit picture. Under the proposal, the Treasury Department expects millions of savers would close their traditional Individual Retirement Accounts to open the new accounts, paying taxes on the withdrawals now rather than later, when they retire. That would cost the government tax revenue in the future but would provide a $15 billion increase in revenue during the next three years, thus brightening Bush's bottom line.

The White House's $521 billion deficit forecast for 2004 is considerably higher than the $477 billion deficit projected by CBO, but Bush's $237 billion deficit for 2009 is mostly consistent with CBO's $239 billion forecast for that year. A White House official dismissed the discrepancy, saying, "It's not at all unusual for projections to be different."

But budget aides in both parties noted that the higher number makes it easier to say the deficit would be cut in half in five years. A higher deficit forecast now could also help Bush show progress when his budget office delivers its updated projection in July, congressional aides said.

"These numbers are not real," said Kahn, of the House Budget Committee. "The real numbers are that we're headed toward far bigger deficits as far as the eye can see. He's taken a bad situation and made it really bad."

Staff writer Stephen Barr contributed to this story.