$2.4 Trillion US Budget to Boost Defense Spending

Reuters, Feb. 03, 2004

WASHINGTON -- President Bush proposed a $2.4 trillion election-year
budget on Monday that would boost defense spending, slash 128 programs
and seek to cut this year's record deficit in half -- a goal even fellow
Republicans were skeptical he could achieve.The White House acknowledged it would need up to $50 billion in extra
money for military operations in Iraq and Afghanistan next year. This
would be on top of the $400 billion military budget and would
potentially shatter his deficit reduction aims.

After inheriting a surplus, Bush has overseen a dramatic worsening of
the budget picture. He hopes to improve his fiscal image before the
November election by laying out plans to reduce the record $521 billion
deficit by a third next year and in half between 2007 and 2009.

To get there, he is asking Congress to terminate 65 major programs and
reduce another 63, reserving the bulk of new federal spending for
homeland security and defense while making his tax cuts permanent.
Among those to be scrapped -- a $149 million public housing program and
a $171 million Commerce Department advanced technology program for
businesses.

The White House still expects the budget shortfall to total $1.35
trillion through 2009 and government debt to rise from $8.1 trillion to
$10.5 trillion, prompting warnings from Democrats that chronic deficits
would crowd out private investment, drive up interest rates and slow
economic growth.

"We went through a recession, we were attacked and we're fighting a
war. These are high hurdles for a budget and for a country to overcome
and yet we've overcome them," Bush said of his budget, which would cut
funding for about half of the 15 Cabinet-level agencies.

He said he was "confident" his deficit targets would be met, but
Democrats and Republicans alike expressed doubts and said they were
bracing for a bitter fight between the White House and Congress that
could stretch through the campaign season.

Florida Republican Rep. Bill Young, the House of Representative's chief
overseer of federal spending programs, said "austere" spending limits
would not significantly reduce the deficit. "The numbers simply do not
add up."

Rep. John Spratt of South Carolina , the ranking Democrat on the House
Budget Committee, said it was "neither credible nor realistic."

In line with his campaign priorities, the budget's biggest winners will
be homeland security with a nearly 10 per cent rise and the military
with nearly 7 per cent.

Defense contractors including Boeing Co. and Northrop Grumman Corp.
stand to benefit as Bush's $401.7 billion military budget increases
spending on missile defense and on modernizing the Army.

To placate conservatives threatening a revolt, growth of other
discretionary spending would be capped at 0.5 per cent. Because that is
well below the inflation rate, it amounts to a cut in domestic programs
and the lowest growth since 1993.

Among the hardest hit were agriculture, transportation, environmental
and small business programs.

Housing advocacy groups warned that Bush's budget would reduce by
250,000 the number of families receiving aid. Education would get an
overall 3 per cent boost -- not enough, Democrats say, to fulfill Bush's
election-year pledge to improve school performance.

AIDS advocacy groups said he would cut assistance by almost two-thirds
to the UN-backed Global Fund to Fight AIDS, tuberculosis and malaria.

Bush has set the goal of bringing this year's record $521 billion
shortfall down to $364 billion in fiscal 2005, to $241 billion in 2007
and then to $237 billion in 2009. There is no talk of surpluses in the
foreseeable future.

While a record in dollar terms, a $521 billion shortfall would still be
less than levels seen in the early 1980s when viewed as a percentage of
the size of the US economy.

In a preview of election-year battles, Democrats scoffed at Bush's plan
to stem the red ink while asking Congress to make permanent his tax
cuts and warned of painful cuts in popular programs from veterans'
medical care to law enforcement.

"It's the most anti-family, anti-worker, anti-health care,
anti-education budget in modern times, and it doesn't deserve to pass,"
said Sen. Edward Kennedy, a Massachusetts Democrat.

Fiscal conservatives accused the White House of relying on gimmicks,
like stretching the definition of homeland security to sidestep its own
spending limits, and want much deeper cuts.

"He's moving in the right direction but we need to go further," said
Pennsylvania Republican Rep. Pat Toomey, the leader of one group of
conservatives. Bush also omitted money to reform Social Security -- a
key plank of his re-election campaign.

Some business tax breaks favored by Republicans will also be reined in
while the costly reform of the alternative minimum tax which hits
middle income taxpayers is to be put off.