Bush's $2.77 Trillion Budget Plan Calls for Medicare Cuts

WASHINGTON, Feb. 6 — President Bush proposed a $2.77 trillion budget today that significantly increases spending on defense and domestic security while calling for cutbacks in a range of domestic programs, new efforts to address the long-term costs of an aging population and an unrelenting push to lock in permanently the tax cuts that the administration pushed through Congress in recent years.

The budget bears all the hallmarks of the Bush presidency, putting national security and tax cuts above all other considerations and gradually tightening or reducing spending on programs, including educational loans, farm subsidies and national parks. But it is unclear how much appetite Congress will have in a critical midterm election year for further spending cuts, including a new formula Mr. Bush is proposing to limit the growth in Medicare spending, at a savings of $36 billion over the next five years.

The administration stood by its pledge that it could cut the budget deficit in half by 2009, compared with its projection for 2004. The projections issued today by Mr. Bush's budget director, Joshua B. Bolten, show that the huge deficits that have returned since Mr. Bush came to office were partly offset last year by what Mr. Bolten called a "remarkable" $274 billion increase in federal tax receipts. Almost all of that was the result of stronger-than-expected economic growth, which Mr. Bolten said was directly attributable to the tax cuts – a supply-side argument many of the administration's critics reject.

Mr. Bush, in a budget message, defended his approach of seeking increases of 7 and 8 percent, respectively, in defense and domestic security, while cutting elsewhere.

"My administration has focused the nation's resources on our highest priority: protecting our citizens and our homeland," Mr. Bush said in his budget message. "Working with Congress, we have given our men and women on the frontlines in the war on terror the funding they need to defeat the enemy and detect, disrupt and dismantle terrorist plots and operations."

In the other areas where Mr. Bush has advocated new programs – including research in nuclear energy and alternative fuels, and preparation for the potential outbreak of bird flu – the amount of new federal funds proposed in the budget is relatively modest.

For example, the nuclear energy program, which Mr. Bush proposed in last week's State of the Union address as a key element in weaning the United States of Mideast oil, is budgeted at $250 million, building on a program about a quarter of that size that has existed for many years. That amounts to about one-half of one percent of the estimated cost of operations in Iraq in the fiscal year of 2007, which the administration tentatively estimated at $50 billion, in addition to the defense budget of $439.3 billion.

Mr. Bush also proposes financing for another of his major State of the Union initiatives, the American Competitiveness Initiative, which would train 70,000 high school teachers and 30,000 scientists and mathematicians to teach classes in local public schools, but he cuts other popular education programs – a delicate issue in an election year. Among those he is asking Congress to shut down include programs in vocational education and two other programs – legacies of Lyndon Johnson's Great Society programs, to prepare poor and minority students for college.

The budget was immediately attacked on Capitol Hill by Democrats, who see an opportunity to turn many of the proposed cuts into campaign issues. Most focused on the rise in the federal deficit to an all-time high, $423 billion, a figure that the bush administration said had risen because of upwards in $100 billion in emergency spending after Hurricane Katrina. Democratic leaders said that this was no time for tax cuts.

"If the Bush tax cut agenda is enabled, the revenue loss over 10 years is $1.8 trillion," said Representative John Spratt, the South Carolina Democrat, who serves as the ranking member of the Budget Committee.

He noted that Mr. Bush had omitted almost all the cost of reversing the alternative minimum tax, a system created decades ago to make sure the richest Americans paid at least some tax and that now affects millions of new taxpayers each year. "This administration's budgets will only take us farther down the road of massive deficits and mounting debt," Mr. Spratt said.

The Senate's minority leader, Harry Reid, Democrat of Nevada, attempted to tie the budget to Washington's lobbying scandals, saying that the programs that Mr. Bush saved were part of what he called "the Republican culture of corruption."

"While working Americans are facing higher prices for everything from health care to gas to college tuition, this president's budget continues to hand out costly, budget-busting favors for special interests like the drug, oil, and H.M.O. industries," he said. "After creating record deficits and debt with his budget-busting tax breaks, the president is asking our seniors, our students and our families to clean up his fiscal mess with painful cuts in health care and student aid."

But the Democrats are unlikely to rein in defense or domestic security spending – which would open them further to the Republican charge that they are weak on national security. For their part, Republican leaders, caught between a wing of the party that wants smaller government and a wing that fears a backlash against Mr. Bush for cutting domestic programs, said the proposal represented only a starting point for Congressional budget debate.

"President Bush has laid the groundwork for a renewed look at our spending priorities as we focus on reining in federal spending, reducing the deficit and continuing America's strong economic growth," the House speaker, J. Dennis Hastert, Republican of Illinois, said while carefully avoiding any specific endorsement of Mr. Bush's proposals.

The biggest proposed savings were in mandatory spending on entitlements. Those totals would come down by $65 billion over the next five years, more than half accounted for by cutting Medicare growth.

Mr. Bolten called the current trends in Medicare "unsustainable," and said Mr. Bush remained committed to fundamental changes in entitlement spending, despite the failure of his call last year to revamp Social Security.

The budget plan submitted to Congress today covers the 2007 fiscal year, which will begin on Oct. 1. The total of $2.77 trillion in called-for spending would be up by 2.3 percent from projected spending of $2.71 trillion this year. That was considerably above the $2.57 trillion plan Mr. Bush sent to Congress a year ago.

The administration insisted that it remained on track for cutting the budget deficit in half by the time Mr. Bush leaves office in 2009. But that involves some numerical sleight-of-hand: It is based on a projected deficit of $521 billion for 2004 that never came to pass. The 2006 projected deficit of $423 billion is well above a pre-Katrina estimate the government made that the deficit at the end of this fiscal year would come in at $341 billion. But under Mr. Bush's projections, the deficit should fall again to $354 billion in the 2007 fiscal year, and to $183 billion in 2010.