Pentagon is big winner in Bush's budget for '08

WASHINGTON - The Pentagon is the big winner in President Bush's proposed budget for next year, while domestic items such as aid to schools and grants to local governments will get only the slightest of increases.

Medicare and Medicaid, the health program for the poor and disabled, would shoulder modest but politically difficult cost curbs in the budget the White House is submitting to Congress on Monday.

Some $18 billion in budget savings would come from farm programs over five years.

Bush's spending plan totals almost $3 trillion for the budget year starting Oct. 1. It would produce a surplus in five years, helped by steady revenue growth and a squeeze on the one-sixth of the budget that covers domestic agencies such as the departments of Education, Energy and Health and Human Services.

Domestic agencies would not face an outright cut, as proposed last year, but would see increases averaging 1 percent, White House Budget director Rob Portman said. That is less than anticipated inflation, but higher costs for veterans' health care probably would result in a larger than average increase.

The Pentagon, which also consumes one-sixth of the overall budget, would get a whopping 11 percent increase, to $481.4 billion in its core budget. And that is before accounting for an additional $235 billion in war costs over the next year and a half.

Bush's plan will get a skeptical reception from the Democratic-controlled Congress. Democrats say it meets the president's promise to balance the budget by 2012 by omitting war costs and expensive changes to the alternative minimum tax and assuming politically untenable cuts in payments to doctors under Medicare.

"There's this continuing deception about our real fiscal condition," the chairman of the Senate Budget Committee said in an interview Saturday. "Over and over again we see things left out of his budget that we know are going to have to be dealt with," said Sen. Kent Conrad, D-N.D.

Democrats also say Bush's estimated cost of about $6 billion for increasing U.S. combat troop strength in Iraq greatly understates the likely total.

For months, Conrad has worked in back channels to establish a group of administration officials and lawmakers that would try to rein in costly benefit programs such as Social Security, Medicare and Medicaid. But the president's refusal to consider some tax increases has scuttled the idea, at least for now.

Bush pushed the balanced budget idea - to applause - before a meeting Saturday with House Democrats in Virginia. But he seemed to acknowledge that a large-scale budget agreement with Democrats is a long shot.

"I'm under no illusions of how hard it's going to be," Bush said. "The only thing I want to share with you is, is my desire to see if we can't work together to get it done."

There is room for some modest steps such as an increase in the maximum Pell Grant for low-income college students to $4,600, $550 more than the current cap.

House Democrats last week passed an increase in the maximum grant to $4,310.

The federal contribution to the popular State Children's Health Insurance Program would rise slightly to address chronic shortfalls. States, however, would get less money to cover children in families at twice the poverty level or more. Democrats are pressing for far greater increases in the children's health program.

The White House's budget also would trim $12 billion from Medicaid, mostly through lower payments to states for administrative costs. About $5 billion or so would go toward addressing SCHIP shortfalls, according to the White House budget office.

The proposed cuts to Medicare and Medicaid are relatively modest, given the overall size of the programs. The Medicare reductions would come in part from smaller inflation adjustments for hospitals, nursing homes, home health care providers and hospices. More higher-income older people would face increased premiums.

Hospitals in particular are a powerful lobbying group and often are some of the leading employers in lawmakers' districts and states. Smaller Medicare cuts of $36 billion cuts proposed last year went nowhere in a GOP-led Congress, and Democrats quickly pounced on the new proposal.

"I think that sounds like the president is declaring war on us and the poor people in this country," said Rep. Pete Stark, D-Calif.

Stark and other Democrats probably will go after what they see as excessive payments to private managed care plans that provide care to about 8 million Medicare beneficiaries.

Democrats also must deal with a scheduled 8 percent cut in Medicare payments to doctors, a byproduct from a 1997 budget bill. Bush's budget would leave the cut in place, though Congress is virtually certain to provide relief as it has since 2003 with other scheduled payment cuts. Such a move would eat up Bush's proposed Medicare savings and then some.

All told, Bush is seeking $96 billion over five years from mandatory programs providing fixed benefits such as Medicare, farm subsidies and Medicaid and whose spending rises each year as if on autopilot.

"Unless we act, we will saddle our children and grandchildren with tens of trillions of dollars of unfunded obligations," Bush said Saturday in his weekly radio address. "They will face three bad options: huge tax increases, huge budget deficits or huge and immediate cuts in benefits."